​Leverage is quickly being squeezed out of the “new economy” shares which were among the best performers over the last 18 months. That is certainly going to lead to earnings revisions for the companies like Nvidia, Align Technologies and Netflix.

It also holds out the prospect of a lengthier period of underperformance for the segment of the Technology sector which has been most aggressively bought by investors over the last few years.

China Is Giving the World's Carmakers an Electric Ultimatum

This article from Bloomberg News may be of interest to subscribers. Here is a section:

The world’s biggest market for electric vehicles wants to get even bigger, so it’s giving automakers what amounts to an ultimatum. Starting in January, all major manufacturers operating in China—from global giants Toyota Motor and General Motors to domestic players BYD and BAIC Motor—have to meet minimum requirements there for producing new-energy vehicles, or NEVs (plug-in hybrids, pure-battery electrics, and fuel-cell autos). A complex government equation requires that a sizable portion of their production or imports must be green in 2019, with escalating goals thereafter.

The regime resembles the cap-and-trade systems being deployed worldwide for carbon emissions: Carmakers that don’t meet the quota themselves can purchase credits from rivals that exceed it. But if they can’t buy enough credits, they face government fines or, in a worst-case scenario, having their assembly lines shut down.

China is the world’s largest market for automobiles so what they decide is permissible within their market is likely to shape the plans of manufacturers for the globe. One of the primary reasons companies have been announcing plans for lots more electric and hybrid vehicles over the coming years is because of the Chinese mandates. That is the primary driver behind the capacity build in the battery sector which needs to ramp up substantially if the demand growth profile is to be reached.

Long-term themes review October 4th 2018

FullerTreacyMoney has a very varied group of people as subscribers. Some of you like to receive our views in written form, while others prefer the first-person experience of listening to the audio or watching daily videos.

The Big Picture Long-Term video, posted every Friday, is aimed squarely at anyone who does not have the time to read the daily commentary but wishes to gain some perspective on what we think the long-term outlook holds. However, I think it is also important to have a clear written record for where we lie in terms of the long-term themes we have identified, particularly as short-term market machinations influence perceptions.

Long-term themes review August 15th 2018

FullerTreacyMoney has a very varied group of people as subscribers. Some of you like to receive our views in written form, while others prefer the first-person experience of listening to the audio or watching daily videos.

The Big Picture Long-Term video, posted every Friday, is aimed squarely at anyone who does not have the time to read the daily commentary but wishes to gain some perspective on what we think the long-term outlook holds. However, I think it is also important to have a clear written record for where we lie in terms of the long-term themes we have identified, particularly as short-term market machinations influence perceptions.

Let me first set up the background; I believe we are in a secular bull market that will not peak for at least another decade and potentially twice that. However, it also worth considering that secular bull markets are occasionally punctuated by recessions and medium-term corrections which generally represent buying opportunities.

Biotech returning to outperformance

The Nasdaq-BioTechnology Index broke out of a long base in 2011 and hit a medium-term peak in 2015. It found a medium-term low in 2016 and has held a choppy uptrend since; with two yearlong ranges one above another. The Index rallied this week to test its recovery high and a clear downward dynamic would be required to check the upward bias.

More and More, New Drugs Clear the FDA With 'Accelerated Approval'

This article by Abigail Fagan & Mark Kaufman for Undark may be of interest to subscribers. Here is a section:

Today, the FDA is increasingly proactive in bringing drugs to market short of full approval and uses accelerated approval to get new drugs to people suffering from devastating diseases. Since 2003, more than 16 percent (66 of 404) of all new drugs were approved through the Accelerated Approval Program, and it seems to be a more popular option. Between 2003 and 2013, about three drugs were approved each year through this expedited route. But during each of the last three years (through 2016), that number has increased to more than seven drugs per year.

The FDA is candid about its commitment to expedited approval programs — in part to speed up what is often characterized as a notoriously drawn-out and bureaucratic approval process. The agency’s former head, Hamburg, wrote about the FDA’s intention of getting new drugs to people as “quickly” as possible, and the FDA’s new leader, doctor and cancer survivor Scott Gottlieb, bemoans the FDA’s slow-moving approval process. While a fellow at the conservative American Enterprise Institute in 2012, Gottlieb lamented the “increasingly unreasonable hunger for statistical certainty on the part of the FDA.” And at Gottlieb’s confirmation hearing last May, he rejected the idea that speeding up drug approvals would compromise their safety, calling it a “false dichotomy that it all boils down to a choice between speed and safety.”

But the increasing reliance on accelerated approval and other means of expediting drug approval have many critics worried — particularly given that the interests most readily served by fast-track approvals are those of the pharmaceutical industry. David Gortler, an associate professor of pharmacology at Georgetown University and a former FDA medical officer, is one such critic. He fears that the drive to get drugs out faster with weaker scientific evidence is already taking a toll — not just on consumers who are taking drugs that should never have been approved, but also on the agency’s credibility.

Email of the day on chasing momentum:

“I am following your comments every day with great pleasure, your summaries give me an excellent picture what is going on, thanks. Question: I missed completely all the new Technology shares - google, apple etc. frustrating. you highlighted “momentum shares” - would it be too aggressive to start to invest in these tech shares NOW? please advise without responsibility on your side, off course, or what are you doing now with liquidity - I sold real estate here in Switzerland and enjoy liquidity on the account. all the best”

Thank you for your kind words and congratulations on your successful property transaction. The question of whether to chase momentum at this stage in the cycle is the same as subscribing to the greater fool theory. The other side of that argument is in the latter stages of a bull market there are plenty of fools.

Long-term themes review July 17th 2018

FullerTreacyMoney has a very varied group of people as subscribers. Some of you like to receive our views in written form, while others prefer the first-person experience of listening to the audio or watching daily videos.

The Big Picture Long-Term video, posted every Friday, is aimed squarely at anyone who does not have the time to read the daily commentary but wishes to gain some perspective on what we think the long-term outlook holds. However, I think it is also important to have a clear written record for where we lie in terms of the long-term themes we have identified, particularly as short-term market machinations influence perceptions.

Long-term themes review June 22nd 2018

FullerTreacyMoney has a very varied group of people as subscribers. Some of you like to receive our views in written form, while others prefer the first-person experience of listening to the audio or watching daily videos.

The Big Picture Long-Term video, posted every Friday, is aimed squarely at anyone who does not have the time to read the daily commentary but wishes to gain some perspective on what we think the long-term outlook holds. However, I think it is also important to have a clear written record for where we lie in terms of the long-term themes we have identified, particularly as short-term market machinations influence perceptions.

I realise this summary at 4600 words is getting rather lengthy which is why I decided to right another book to more fully explore the issues represented by the rise of populism and what that means for markets and the global economic order. I’ve agreed an August/September deadline so hopefully it will be available this year.

Biggest Electric-Vehicle Battery Maker Soars 44% on Debut

This article by Ma Jie for Bloomberg may be of interest to subscribers. Here is a section:

Shares of the world’s biggest maker of electric-vehicle batteries jumped on their trading debut as investors bet on rising demand for new-energy cars worldwide.

Contemporary Amperex Technology Ltd. rose by the maximum 44 percent to 36.20 yuan at 10:17 a.m. in Shenzhen, China, valuing the company at about $12.3 billion. The manufacturer sold a 10 percent stake at 25.14 yuan a share in its initial public offering on May 30.

Investors are confident that CATL, as the company is known, can fend off rivals including Panasonic Corp. and continue to win orders as automakers move toward electric vehicles. CATL, whose customers include Volkswagen AG, had reduced the size of its IPO by more than half compared with its original ambitions because of declining margins and a cap imposed by Chinese authorities on price-earnings ratios in IPOs.

CATL produces more batteries than Tesla and is likely to continue to do so well into the future considering the pace of factory building it has planned. China has every intention of dominating the battery sector both because it is the largest auto market but also because it has a clear aim to become globally competitive in auto exporting. Additionally, as an energy importer it has a clear reason to reduce imports of oil if at all possible. That suggests China will be investing heavily in batteries for the foreseeable future.

Long-term themes review April 10th 2018

FullerTreacyMoney has a very varied group of people as subscribers. Some of you like to receive our views in written form, while others prefer the first-person experience of listening to the audio or watching daily videos.

The Big Picture Long-Term video, posted every Friday, is aimed squarely at anyone who does not have the time to read the daily commentary but wishes to gain some perspective on what we think the long-term outlook holds. However, I think it is also important to have a clear written record for where we lie in terms of the long-term themes we have identified, particularly as short-term market machinations influence perceptions.

Federal Sports-Wagering Ban Overturned by U.S. Supreme Court

This article by Greg Stohr for Bloomberg may be of interest to subscribers. Here it is in full:

The U.S. Supreme Court struck down the federal law that bars gambling on individual sporting events in most of the country, in a ruling likely to unleash a race among the states to attract billions of dollars in legal wagers.

Ruling in a New Jersey case, the court said the 1992 law unconstitutionally forced states to maintain laws that outlaw gambling. Nevada is the only state where single-game wagering is now legal.

Sports gambling could begin in a matter of weeks in casinos and racetracks in New Jersey, which instigated the legal fight by repealing its gambling prohibition. Mississippi, Pennsylvania, New York, Delaware and West Virginia could follow soon, and the number of states might reach double digits by the end of the year.

The vote was 6-3 to strike down the entirety of the federal prohibition. Americans place $150 billion a year in illegal sports bets, according to the casino-backed American Gaming Association. The research firm Eilers & Krejcik Gaming puts the number at $50 billion to $60 billion, not counting bets among friends.

The ruling starts a new era for the largest sports leagues, which fought New Jersey in court even while moving toward embracing legalized sports wagering. In January, a National Basketball Association executive told New York lawmakers the leagues should get 1 percent of all bets. The NBA says it would prefer a new federal law to set nationwide standards.

However one feels about investing in vice, there is no doubt that people like to gamble and the removal of the Federal prohibition will be a major benefit to casino. Since there was never a prohibition on online gambling this news is unlikely to be of particular interest to that segment while the biggest losers are likely to be Indian casinos which have been able to skirt the law for the last few decades.

North Korea Is a Bright Spot for Billionaire Who Forecasts Crash

This article by Tamim Elyan and Manus Cranny for Bloomberg may be of interest to subscribers. Here is a section:

President Donald Trump is aiding Sawiris in one way, though: If a North Korean peace deal can be reached, the Egyptian’s investments there may finally pay off. After 10 years of waiting to repatriate all his profits easily and control his mobile-phone company, Egypt’s second-richest man says an accord would let him reap some of his returns.

“I am taking all the hits, I am being paid in a currency that doesn’t get exchanged very easily, I have put a lot of money and built a hotel and did a lot of good stuff there,” said Sawiris, who founded North Korea’s first telecom operator, Koryolink. The North Korean unit’s costs and revenues aren’t currently recognized on the financial statements of Sawiris’ Orascom Telecom Media & Technology Holding SAE.

Sawiris over the years has been pressured by “every single Western government in the world” for his presence in the country hit by international sanctions for its nuclear threats, he said, but he considered himself a “goodwill investor.” His advice for governments and to Trump ahead of his expected meeting with North Korean Leader Kim Jong Un: Don’t bully him, and promise prosperity in exchange for concessions on nuclear.

Investing in North Korea is not for the faint hearted or indeed for those who wish to avoid state sponsored mischief making. However, with the prospect of improving relations between North Korea and the USA, investors will turn to thinking about how best to leverage that event in their portfolios.

Long-term themes review March 7th 2018

FullerTreacyMoney has a very varied group of people as subscribers. Some of you like to receive our views in written form, while others prefer the first-person experience of listening to the audio or watching daily videos.

The Big Picture Long-Term video, posted every Friday, is aimed squarely at anyone who does not have the time to read the daily commentary but wishes to gain some perspective on what we think the long-term outlook holds. However, I think it is also important to have a clear written record for where we lie in terms of the long-term themes we have identified, particularly as short-term market machinations influence perceptions.

Email of the day on long-term themes and investment vehicles (Updated January 16th)

Well done on all the recent market analysis and continuing your thoughtful and insightful analysis as ever. I was wondering if you might be able to provide some thoughts and ideas regarding how to invest is some of the longer-term themes you are running with?

Markets seem to be entering some really interesting phases that you are highlighting, such as the end of QE, coordinated economic expansion which must spell the end of the long-term bond boom that we have seen. Whilst I know you watch and play the markets daily with your futures plays, those of us with non-related "day" jobs need slightly less volatile longer-term ways to play these trends, e.g. perhaps through some ETFs or appropriate equity investments.

Given your knowledge of the markets, I was wondering if you might be able to

1) summarise your key themes right now and

2) propose some suggested means to back these ideas. I think the regular summaries help as not all of us have time to listen to your broadcasts or even read the bulletin every day.

Perhaps this could be a weekly update?

Whilst I like your own personal portfolio updates, your trades tend to be futures so need much more regular management than the type of trades myself and I suspect many other readers may feel more comfortable with.

Thank you for this email and reasonable request. Right now, the Big Picture Long-Term video, posted every Friday, is aimed squarely at anyone who does not have the time to read the daily commentary but wishes to gain some perspective on what we think the long-term outlook holds. Here is a brief summary of my view at present.

Email of the day on investing in emerging technology themes for a UK investor:

New Year greetings to you and David and all FT members. About a year ago on the site there was a presentation on the new technological revolution, given by Mr. David Brown. It covered AI, robotics, cyber security, bioTechnology, healthcare and the like. It was all wonderful stuff, but how do I deal in the shares and ETF's mentioned? I'm with Barclays - an ISA and spread betting account - and they have little coverage of these areas.

Happy New Year to you and to everyone in the Collective of subscribers Thanks for this question which is sure to be of interest to other subscribers. This article from the Telegraph dated 2014 explains how to invest in overseas shares through your ISA. Here is a section:

A crucial question: can you put your overseas stocks in your Isa or pension? HM Revenue & Customs' rules forbid foreign currency in an Isa, so you have to use the costlier, sterling conversion approach to buy foreign shares in your Isa, converting back to pounds when you sell. The Isa accounts operated by Hargreaves and TD allow foreign stocks to be held in this way.

Disappointingly, Barclays' systems do not allow any overseas stocks to be held within an Isa.

With self-invested pensions, or Sipps, you can hold and trade in foreign currencies. So you can have part of your Sipp denominated in dollars if your broker (such as TD) offers the facility. Hargreaves Lansdown doesn't offer the service and Barclays, again poor in this respect, doesn't allow any overseas stocks within its pension accounts.

Email of the day on the big picture and biotech

Happy and prosperous New Year to you and David and all the staff at “Fuller Tracey Money”.

I compliment you on the outstanding “Year-end Big Picture” video. Your assessment of the interaction between the social, political and financial considerations is particularly insightful and gives me, and all your readers, a firm base on which to plan our investing for 2018. Towards the end of the video you discussed the inter-relationship between AI and big data. You said health care and biotech sectors would be major beneficiaries of these developments.

Only today I read a comprehensive “Seeking Alpha” biotech sector report which may be of interest to readers.

Thank you for your kind words and I’m delighted you enjoyed the yearend video. At The Chart Seminar, I spend a good deal of time on the first day talking about the dangers of myopia when looking at markets. This is even more important when we have open positions that we monitor on a daily basis. It is too easy to focus only on what we own and to fall into the temptation of thinking we understand everything about them because we are looking at them every day. That is why when analysing any market, we recommend starting with as much data as you can get your hands on. A long-term chart tells us instantly whether we are in a secular bull or bear market. My resolution in 2018 is spend more time focusing on long-term charts.

Overextensions relative to the trend mean

The passage of the tax bill was initially seen as a bullish catalyst for Wall Street but the primary indices gave up much of their advances by the end of the session. If we drill down a little further we can see there are some clear winners and losers.

The Chart Seminar

It is always a pleasure to meet subscribers but doubly so when we get to spend two days together discussing the outlook for psychological makeup of the market, where we are in the big cycles and which sectors are leading and which are showing relative strength. I had three big takeaways from last week’s seminar in London.

As anyone who has attended the seminar will know, I do not have examples but offer delegates the opportunity to dictate the direction of the conversation. That ensures the subject matter is relevant to what they are interested in and also highlights the fact that subject matter is applicable to all markets where an imbalance between supply and demand exists. The second benefit of allowing delegates to pick the subject matter is that it is offers a window into what is popular in markets right now and what might be getting overlooked.

This article by Rich Hardy for Newatlas.com may be of interest to subscribers. Here is a section:

In the team's early experiments with base editing a specific mutation associated with the disease hemochromatosis was successfully fixed. No unwanted off-target effects were identified and the base editor enzyme operated with greater than 50 percent efficiency.

"We are hard at work trying to translate base editing Technology into human therapeutics," Liu says.

The second new CRISPR innovation revealed recently comes from a collaborative team of Broad Institute and MIT scientists. For the first time the team discovered a way to accurately edit RNA base pairs in human cells.

Dubbed "REPAIR" this system also focuses on base editing but this time is targeted at RNA. Unlike permanent changes to DNA, RNA is much more ephemeral and even reversible. The ability to edit RNA in human cells opens up an entirely new world of disease treatments targeting conditions including diabetes and IBD.

"REPAIR can fix mutations without tampering with the genome, and because RNA naturally degrades, it's a potentially reversible fix," explains co-first author David Cox.

CRISPR represents a paradigm shift for the genetics industry because it reduces the cost and time required to experiment with how to edit DNA. When I visited the MIT genetics labs a year ago it was clear that what was next to near impossible five years ago is now something doctoral students can achieve with ease on a daily basis.

Xi Skips Old Growth Pledge as China Seeks Quality Not Quantity

This article from Bloomberg may be of interest to subscribers. Here is a section:

"China’s policy makers are likely to tolerate growth to have another leg down to 5 to 6 percent in the next five years, so that they could have bigger room to fix the structural problems and make growth more sustainable," Hu wrote.

That’s in line with earlier messages of tolerance of slower growth in exchange for stable development. Xi told a meeting of the Communist Party’s financial and economic leading group last year that China doesn’t need to meet the objective if doing so creates too much risk, Bloomberg News reported in December.

Xi’s speech, which ran for more than three hours and mapped out a grand strategy for China’s development by 2050 implies "a change in growth and development objectives," said Chen Xingdong, chief China economist at BNP Paribas SA in Beijing.

The party is seeking to share "growth and prosperity for the majority of people through reformation of income distribution," Chen said

The larger an economy becomes the more difficult it is to sustain double digit growth rates. China is a perfect example of this and its size is a clear example for why smaller economies like India or the Philippines are currently outpacing its expansion.

An Investor's Guide to Understanding Gene Therapy: A Paradigm Shift Whose Time Has Come

Thanks to a subscriber for this heavyweight 239-page report from Raymond James which may be of interest. Here is a section:

What started off as a clinical off-shoot of molecular biology in the 1970s has moved from a therapeutic concept to a viable therapy to address various rare and not so rare genetic diseases. While the gene therapy field has gone through nearly three decades of ups and downs, in our opinion, we are at the cusp of ushering in a new era of therapies that can address the underlying biology of many inherited disorders.

Two therapies have already been approved for commercialization in Europe, although calling either a commercial success is a stretch. UniQure’s Glybera, the first approved in Europe in 2012, experienced extremely limited usage in the commercial setting and was withdrawn from the market early this year. GlaxoSmithKline’s Strimvelis, approved in 2016 at a price tag of $594,000 euros (about $665,000 USD), is currently treating patients with ADA deficiency, although given the size of the patient population, we see this platform more as a good will gesture as compared to a robust money generating machine.

That said, we view these two products largely as proof of concept therapeutics whereby clinical trials were able to show efficacy and long-term safety, both of which helped clear regulatory hurdles with flying colors. While the pessimist might view the turbulent history of the gene therapy space as more of what’s to come, we view this field as a potential revolution. In short, within the next few years, we expect multiple U.S. approvals of gene therapy products…

Subscribers will be familiar with my enthusiasm for the immuno-oncology sector which is rapidly approaching commercialisation and has been the focus on enthusiastic M&A activity. Car-T cell reprogramming is an exciting field which has led to considerable success in previously untreatable leukemia and research is now underway to employ similar strategies in solid tumors.

During Irma's Power Outages, Some Houses Kept The Lights On With Solar And Batteries

This article by Adele Peters for fastcompany.com may be of interest to subscribers. Here is a section:

Of course, if a storm is strong enough to tear solar panels off a roof and the battery can’t recharge, this type of system wouldn’t work for long. It’s also expensive: A single Powerwall unit, which can store 14 kilowatt-hours of energy, costs $5,500 plus supporting hardware and installation that can cost up to $2,000. A similar battery from Mercedes-Benz ranges from $5,000 to $13,000 for a 20 kilowatt-hour system including installation. In the U.K., where Ikea now sells both solar panels and batteries, its batteries are also nearly $4,000 at current exchange rates. Beyond cost, if someone rents an apartment or house and can’t install solar panels, it’s not an option.

But the cost is likely to drop, and battery storage and solar power could also be used in community solar projects, where customers don’t have solar panels at their own homes, but invest in or buy power from a nearby microgrid. In Orlando, customers can buy solar energy from a 12-megawatt solar farm built on top of a landfill; while the power is currently sent back to the grid, in the future, it’s possible that it and other community solar farms could use batteries to provide local backup power from multiple locations in emergencies.

Microgrids, batteries and solar cells have the potential to grow exponentially as costs come down and business models evolve. There are two additional points that are likely to prove attractive to consumers as well as government. The first is that the utility network is likely to be a target in any future war and foreign governments have already demonstrated both the intent and ability to tamper with it.

Large Cap Tech

Large Cap Tech – The Fed is meeting over the next two days and we may hear something about how balance sheet rationalization. Meanwhile the S&P500 is trading above 2500 and the Nasdaq-100 is trading above 6000 while an increasing number of Asia Pacific markets are breaking on the upside as well.

The major constituents of these indices from the tech sector, namely Apple, Amazon, Alphabet, Facebook and Microsoft have considerable influence on the ability of these indices to continue to extend their breakouts so I thought it would be instructive to highlight their current chart patterns.

Email of the day on the deflationary impact of technology

I have noticed from your recent postings that while you recognize all the great outcomes Technology will bring, you also recognize the downside consequences of all the displaced labor. Another effect on labor has been the financialization of our economy. Check out this article (open domain) Thank you for your continued great work!

Thanks for this link may also of interest to subscribers. I found the chart of wages and salaries as a percentage of GDP to be particularly interesting.

Technology is inherently deflationary which means we can do more with less and each of us can easily come up with examples of how innovations have improved different aspects of our lives. However, the rapid pace of innovation in artificial intelligence, robotics and healthcare while representing truly exciting developments for corporations also mean that millions of jobs are going to be under pressure.

CAR-T therapies a blue-sky scenario

Thanks to a subscriber for this report from HSBC focusing on Novartis which may be of interest. Here is a section:

Kymriah indicated for refractory ALL patients, but other indications are larger. Although Kymriah is only approved in the US to treat the small number of patients with refractory acute lymphoblastic leukaemia (ALL), additional indications such as Diffuse Large B-Cell Lymphoma (DLBCL) represent a significantly larger addressable patient population. Kymriah is the first Chimaeric Antigen Receptor T-cell (CAR-T)-based treatment approved globally.

Blue-sky scenario not that much of a stretch…Over 100,000 patients die from leukaemias, lymphomas and myelomas (haematological cancers) annually in the US and Europe. They are largely, by definition, refractory to available treatments. In due course, this patient group, or a proportion of it, could be addressed by CAR-T-based treatments. Further, CAR-T-based treatments could potentially be used earlier in the treatment of cancers and potentially in some solid tumours as well. Note that these figure do not include Japan, China, or elsewhere.

…25% of refractory blood cancers, 2.5% of other cancers. In our blue-sky scenario for CAR-T treatments, an assumption that 25% of refractory blood cancers and 2.5% of other refractory cancers in the US and EU could be treated with CAR-T therapies in due course (although this would require sizeable manufacturing expansion by all CAR-T manufacturers) would yield peak sales of just under USD26bn. If Novartis garnered 50%, it would generate peak sales of just under USD13bn for Kymriah and other CAR-T therapies versus USD3.3bn that we currently forecast (27,000 patients treated versus 7,200 on our current forecast). In our view, this bluesky scenario is not an unrealistic possibility in terms of patient numbers.

Immuno-oncology is the leading growth sector within the healthcare sector because for the first time it holds out the promise of curing cancer. What is so compelling about Novartis’ newly approved drug is that it succeeded in achieving a 90% remission rate for people that failed to respond positively to conventional chemotherapy and other treatments.

How a Bird Charity's Battle Against a Wind Farm Backfired

This article by Jess Shankleman for Bloomberg may be of interest to subscribers. Here is a section:

When plans for Neart na Gaoithe started being developed in 2008, Siemens AG’s 3.6 megawatt turbine was the most popular among developers. Now manufacturers are working on machines that could be four times bigger, helping companies like Dong Energy A/S build projects cheaply enough to make money at market prices. The collapse in oil prices has also helped lower offshore wind costs, by making the sea vessels needed to install projects cheaper to hire.

I’ve haven’t seen a satisfactory solution for the problem of wind turbines impact on migratory bird populations regardless of the fact offshore turbines help create artificial reefs for sea life. However, the economies of scale that can be gained from going offshore has altered the wind turbine sector beyond recognition.

Email of the day on biotech's recent performance and the Subscriber's videos

Would you care to comment on the sudden decline in biotech shares over the last few days?

I have just started following your videos, after being a stickler for the audios all this time. I must say they add depth. It's like have a running chart seminar all year round! I particularly admire the way you can multitask, carrying on a seamless commentary about something else while your fingers are busy looking for the next chart, without long audio pauses while you wait for the screen to catch up

Thank you for your kind words and I’m delighted you are enjoying the videos. I’m still getting the hang of recording videos and to my embarrassment there have been more bloopers with regard to the microphone and uploading than I would like so please regard them as a work in progress.

Scientists Just Successfully Edited the First Human Embryo Ever in The U.S.

This article by Jolene Creighton for Futurism may be of interest to subscribers. Here is a section:

According to MIT, the work was led by Shoukhrat Mitalipov, who comes from the Oregon Health and Science University. Although details are scarce at this point, sources familiar with the work assert that the research involved changing the DNA of one-cell embryos using CRISPR gene-editing. Further, Mitalipov is believed to have broken records in two notable ways:

He broke the record on the number of embryos experimented upon.

He is the first researcher to ever conclusively demonstrate that it is possible to safely and efficiently correct defective genes that cause inherited diseases.

It is important to note that none of the embryos were allowed to develop for more than a few days, and that the team never had any intention of implanting them into a womb. However, it seems that this is largely due to ongoing regulatory issues, as opposed to issues with the Technology itself.

In the United States, all efforts to turn edited embryos into a baby—to bring the embryo to full term—have been blocked by Congress, which added language to the Department of Health and Human Services funding bill that forbids it from approving any such clinical trials.

Yet, the potential of the CRISPR-Cas9 system as a gene editing Technology is undeniable. As previously mentioned, it has seen success in developing possible cancer treatments, in making animals disease-resistant, and it has even shown promise in replacing antibiotics altogether.

Removing genetic defects is going to be the first application of gene editing but the Technology will not stop there. Changing eye colour, hair colour, skin tone etc are all within the grasp of the Technology today. It will probably be another decade before intelligence, temperament or drive can be customised. There are clear ethical considerations for these sorts of enhancements but the discussion is taking place most vocally in North America and Europe. Asia does not have the same moral structure and will be the primary location for genetic experimentation as a result.

Trump's Drug-Pricing Move Isn't a Drug-Pricing Move

This article by Max Misen for Bloomberg may be of interest to subscribers. Here is a section:

Hospitals are likely to cry bloody murder over this proposal and argue it will lead to service cuts. You likely won't hear a peep from drugmakers, though. These are very low-margin sales, and pharma firms have complained for years about what they say is abuse of the program and the extension of 340B discounts to patients and hospitals they don't think should be eligible. If the CMS change means more sales go to higher-margin areas of the market, then pharma will profit. This move suggests any future 340B and CMS reforms may be pharma-friendly. And any approach that favors drugmakers over hospitals that serve the poor says a lot about the administration's priorities. The president's last public attack on drug prices was months ago. Pricing has apparently faded as a policy priority since the campaign. His administration's actions make that even more clear. Changes to 340B were just one reported aspect of a draft executive order on drug pricing that reads more like a pharma wish list than a plan to restrain price growth.

The election campaign played havoc with emerging biotech stocks in particular as they were singled out by politicians for their high pricing. However, what was lost in the debate is that developing drugs for small numbers of patients is expensive. It is not quite the same thing as hiking prices for long established drugs that are designed to treat common ailments.

Manufacturing Pickup Signals Boost to U.S. Economic Growth

This article by Shobhana Chandra for Bloomberg may be of interest to subscribers. Here is a section:

Faster growth in orders and production in the final month of the quarter indicates solid demand that, together with rising exports, shows manufacturing is on solid footing. The ISM’s pulse of employment in the industry also indicates the government’s measure of factory payrolls, released as part of the Labor Department’s jobs report on Friday, will rebound in June after declining a month earlier.

The expansion was broad based, with 15 of 18 industries surveyed by the purchasing managers’ group posting growth in June. They included machinery, transportation equipment, computer and electronic products, and petroleum and coal products. The three reporting contractions were apparel, textile mills and primary metals.

The 2.9-point monthly gain in the ISM index, which was the largest jump since early 2013, is also notable as it comes amid fading expectations that the government will deliver a fiscal boost, via tax reform and infrastructure spending, in the near future.

Official’s View
“Everything was strong,” Timothy Fiore, chairman of the ISM factory survey committee, said on a conference call. Unless supply-chain constraints arise, “there’s really no reason” why the robust pace of manufacturing can’t continue, he said. At the same time, manufacturers are awaiting more clarity on potential policy changes such as taxes, regulations and tariffs on imported materials including steel, Fiore said.

Purchasing managers index figures for a number of countries came out today with positive figures for the USA, China, Europe and Japan all helping to confirm we are in a period of synchronised global economic expansion. With that view gaining increasing credibility it is acting as a catalyst for rotation in the wider stock market as we head into the second half of the year.

Fast, Precise, Cancer care is coming to a hospital near you

This article from Wired.com may be of interest to subscribers. Here is a section:

On Thursday, the Food and Drug Administration approved the first next-generation-sequencing-based test, from Thermo Fisher Scientific, that can tell you how different drugs will work for you, based on the genetic makeup of each tumour. And it only takes four days to get back results. In many ways, it represents the leading edge of precision medicine’s maturation from a buzzword in grant applications and investor pitch decks to a real, workable product that can actually improve patient outcomes.

Getting the FDA’s approval took nearly two years and 220,000 pages of data. (That’s like reading Karl Ove Knausgaard’s 6-book autobiographical memoir front to back 61 times in a row. Talk about My Struggle.) But the process has helped clarify the agency’s thinking about how to regulate personalized treatments going forward, opening up doors for tech that's still in the pipeline.

The panel, called Oncomine Dx Target Test, takes a tiny amount of tumor tissue and reports on alterations to 23 different genes. All that information is useful for physicians, but three in particular—ROS1, EGFR, and BRAF—are the most crucial. That’s because those mutations have drugs to match: Precision medicine chemotherapies from Pfizer, Novartis, and AstraZeneca. The test can be performed at any CLIA-certified lab, and it’s already being offered by two of the largest oncology-focused ones.

Getting the FDA to approve that amalgam of tests wasn’t easy. “Putting multiple genes and multiple drugs on the same test; all of these are firsts,” says Joydeep Goswami, Thermo Fisher’s president of clinical next generation sequencing. “That put the Technology under extraordinary scrutiny.” The FDA usually approves one diagnostic for one product or drug—that’s it. But the whole point of precision medicine is to tailor treatments for patients based on their genes, and a bunch of one-off genetic tests aren’t going to deliver on that promise. So a multi-gene, multi-drug panel is kind of a big deal.

I have written previously about the rotation into bioTechnology shares because of the overextensions present in other sectors and the potential for base formation completion in the healthcare sector. However the above story represents an additional bullish catalyst for the sector.

The Senate Health Bill Is a Travesty on a Fast Track: Editorial

This article by Bloomberg’s Editors may be of interest to subscribers. Here is a section:

Efforts to shame Republicans for this attack on the poor, old and sick, who will face the brunt of the cuts, are unlikely to succeed. The bill puts some of the party's most cherished goals in a single package:

It fulfills their promise to repeal Obamacare, eliminating individual and employer mandates for insurance coverage and reversing the trend toward universal access to health care in America.

It caps Medicaid payments to the states and slows the program's growth while enabling states to reduce standards for private insurance.

There are substantial questions about what the cost of insurance is likely to be over the coming years as the new administration tinkers with the system without seeming to have a clear vision for what the result will look like. While that is likely to be of particular interest to consumers but there are broader considerations for related stocks.

Biotech update

The Nasdaq BioTechnology sector falls squarely into that category. It pulled back sharply from its mid-2015 peak but ranged above 250 for most of 2016 and has spent most of this year-to-date ranging above 300 and has been firming from that level since Friday.

Email of the day on a Nasdaq ex FAAMG ETF

Thank you for this question which I’ve been asking myself so I guess we are both amateurs. Goldman Sachs coined the FAAMG (Facebook, Apple, Amazon, Microsoft, Google) acronym last week; replaced Netflix with Microsoft. It would be a useful edition to the ETF universe to have a NASDAQ Ex-FAAMG ETF but there would probably not be much demand for it since the mega-cap shares have accounted for the majority of the Index’s performance over the last year.

A 'Life-Changing' Rally is Shaping up in the Stock Market, Predicts One Fund Manager

“Most people can’t even consider the possibility of the market going significantly higher from here because, according to the media, this 8 year recovery is ‘long in the tooth’ and about to end,” he said, adding that investors were also living in fear of the 1987 crash back in 1987.

Finally, there’s the bull market super cycle.

As you can see by the chart below, the market’s pattern over the past century has been about 15 to 20 years of economic boom followed by 10 to 15 years of downturn. The cycle that we’re currently in looks to have started with the highs reached in 2013, and Fahmy says he believes it could last for many more years.

Veteran subscribers to this service are very familiar with this theme, having lived through the last two secular bear markets and the previous secular bull market. The lengthy bearish phases are basically sideways trading ranges, punctuated by a couple of terrifying crashes. We saw these crashes from Jan 1969 to Jun 1970 and Jan 1973 to Oct 1974. Similarly, they occurred again from Sep 2000 to Nov 2002 and Nov 2007 to Mar 2009. People of my generation will also remember the 1987 crash, which actually occurred within the previous secular bull market. It was triggered by everyone trying to hedge at the same time with what was the newly introduced S&P 500 futures contract, as leading central banks raised rates sharply and simultaneously.

With Education and Technology, Brexit Britain Can Engineer Its Way to Greater Prosperity.

The world is gripped by a Technology race and those countries or companies that fail to recognise this will very quickly fall behind. My constant refrain to all politicians is: “Put your faith in engineers and in revolutionary Technology – invest in them and give them a supportive environment that encourages risk-taking and new ideas.”

Britain is now in a uniquely advantageous position to become a world leader in Technology, exploiting the new-found trading freedom that comes from leaving the European Union. We can operate in a business-friendly regulatory environment, negotiate directly with other markets (in particular, Asia) and sell our high-Technology goods, boosting the balance of payments in the process.

Singapore is not a bad model to look to. They are focused on developing and exporting high-Technology products harnessing their highly skilled workforce.

It was refreshing, after continued pleas to successive government ministers, that Jo Johnson, minister of state for universities, science, research and innovation, challenged me to open a new kind of university on Dyson’s Malmesbury campus. He is pushing through the Higher Education and Research Bill to encourage the creation of a new generation of universities. We intend to be the first to take advantage of it, and I hope others will follow.

Johnson has spotted that it is companies which are experimenting, investing and developing to create the future, and has concluded that they are well placed to educate and equip the next generation. Dyson files more patents per year than any UK university Technology transfer office. This inventiveness could be put to good use, inspiring and educating future prolific patent filers.

The legislation will allow us to attain university status and achieve degree-awarding powers of our own. Until then, we will partner with Warwick University. Regardless of the legislative outcome, the Dyson Institute of Engineering and Technology will welcome its first undergraduate students in September. They will work on “live” projects from the off, and will be mentored by practising scientists and engineers – world experts in their field – who will teach alongside academics from Warwick University, an institution renowned for engineering.

Rather than hypothesising about what it is like to be an engineer from the lecture hall, they will find themselves in the risk-filled world of inventing new, real-world Technology.

This is a terrific idea from Jo Johnson and James Dyson. For decades we have seen Dyson’s frustration over the lack of qualified engineers in the UK. The potential is certainly there and now he will be able to train more of his own staff. This is an excellent opportunity for smart, ambitious students.

The Biggest Stock Markets Have Not Had Such Diverse Performances Since 2008

An intensifying crackdown against leverage in Asia’s biggest economy has rocked the hither-to unflappable Shanghai Composite Index over the past week, sending it to a three-month low last session. In the U.S., the largest equity market is embracing a risk rally spurred by the French election, with the S&P 500 Index continuing to build on reflation-trade gains ignited by Donald Trump’s November victory.

The divergence means the two markets are the least in tune since August 2008 -- just before the collapse of Lehman Brothers Holdings Inc. unleashed chaos on the global financial system.

Chinese officials have mainly kept mainland stocks on a tight rein after routs in mid-2015 and the start of 2016 reverberated through world financial markets. Until Monday’s 1.4 percent slump, the Shanghai Composite Index hadn’t fallen more than 1 percent for 86 trading days.

As Beijing’s focus on reducing risk in the financial system shifted from money-market tightening and reducing leverage to containing speculation and irregular trading, the two markets starting moving in opposite directions in the past month.

In one sense, it’s a sign that investors overseas aren’t as worried about Chinese market ructions as they were in previous years -- perhaps partly thanks to underlying strength in China’s economy. Given how mainland stocks have become increasingly linked to global markets, however, the divergence may prove to be a short-term phenomenon, according to Daniel So, a strategist at CMB International Securities Ltd. in Hong Kong.

“The Chinese government is squeezing speculation out of the market and while investors adjust, it will inevitably lag behind other parts of the world," So said.

The apt opening for my comment on the article above is this quote from the memorable Benjamin Graham:

“In the short run, the market is a voting machine but in the long run, it is a weighing machine.”

In the short run market moves are a matter of confidence. If a sufficient number of influential investors in the market crowd are feeling optimistic, they will buy. When others see the market rising they will also be tempted to buy in what becomes a self-feeding bullish trend. This will continue until most investors interested in the trend are already long.

While the market holds its ground for a short period, most investors will remain hopeful. However, when the market has clearly paused for longer than earlier on within the trend, some investors will be tempted to close their position. When the market has fallen back more sharply than previously seen, others will become pessimistic and also sell, causing a bearish trend to form which retraces more of the previous advance.

International investors face many more choices and this can be confusing. A practical way to monitor these markets is by looking at weekly price charts for the indices of interest, showing at least 10-years of back history for perspective. They will quickly reveal Benjamin Graham’s voting machine results in terms of relative strength or weakness over the short to lengthy medium term. Those longer term charts will also show bullish or bearish weighing machine characteristics.

The Equity View: Global Investment Themes

Global Technology: We currently prefer non-mega-cap Technology globally. US Technology stocks trade at close to a market multiple, despite the fact that they are forecasted to grow earnings at a faster rate. In our view, the key positioning strategy in Technology is to avoid the mega-caps. Mega-caps tend to have the least growth and can often carry the greatest expectations. We prefer an equal-weighted basket of tech stocks.

Charles Elliott also favoured smaller-cap Technology companies for their better valuations and often faster growth, in his excellent presentation at The Markets Now recently.

I will add that fashionable mega-cap Technology firms are often pushed higher by Exchange Traded Funds and market momentum programmes. That can be impressive but it is risky for people to chase the strong rallies, which shed gains quickly in the next correction.

Growing International Opportunity for Drug Development

Thanks a subscriber for this report from Oppenheimer which may be of interest. Here is a section:

We believe estimated prevalence is the best measure of the overall cancer market’s size. We have estimated future prevalence for 2014-2018 (Tables 3, 6, 9). To arrive at these estimates, we used the 2012 or 2013 estimate and added estimated incidence (Tables 1, 4, 7) and subtracted estimated deaths (Tables 2, 5, 8) for each year. Exceptions included cancers that did not have prevalence data for 2012 or 2013. In cases where 2013 prevalence was not available for US patients, we used the 2009 prevalence estimate for 2013 or the incidence estimate. For these same exceptions outside the United States, we estimated 2012 or 2013 prevalence as a ratio to incidence that was consistent with US data.

Based on prevalence, we estimate the overall market for cancer therapies in the United States is slightly over 14 million patients growing at 7% per year. In Europe, we estimate the overall market is composed of 8 million patients and is growing at 16% per year. In Japan, we estimate the market is nearly 2 million patients and is growing 13% per year. We believe incidence is the best measure of front-line (newly treated) cancer market’s size (Tables 1, 4, 7). Therefore, we conclude the market for front-line therapies in the US is currently 2 million patients and is decreasing at 8% per year. In Europe, we estimate the market for front-line therapies is approximately 3.1 million patients and is growing at 4.5% per year. In Japan, we estimate the market for front-line therapies is currently 680,000 patients and is growing at 2% per year.

We believe the best measure of the market size for second-line and greater (relapsed/refractory) therapies is prevalence less incidence, which should account for all living patients who are not newly diagnosed. Therefore, we conclude the market for relapsed therapies in the US is currently 15 million patients and is growing at 10% per year. In Europe, we estimate the market for relapsed therapies is approximately 10.8 million patients and is growing at 11% per year. In Japan, we estimate the market for relapsed therapies is currently 2.1 million patients and is growing at 8% per year.

Cancer is a blight on humanity. Because it is based on what is in many respects a random mutation of genes, it avoids notice by the body’s immune system. The net result is that there are many different types of cancer but even within individual groups no two are the same. That represents an acute challenge for drug therapies because while the total market is large, individual therapies are required to treat every patient. Therefore personalised medicine is likely to emerge first in cancer treatment which means oncology represents an important market to monitor.

Big Oil Plan to Buy Into the Shale Boom

American shale with gusto, planning to spend a combined $10 billion this year, up from next to nothing only a few years ago.

The giants are gaining a foothold in West Texas with such projects as Bongo 76-43, a well which is being drilled 10,000 feet beneath the table-flat, sage-scented desert, and which then extends horizontally for a mile, blasting through rock to capture light crude from the sprawling Permian Basin.

While the first chapter of the U.S. shale revolution belonged to wildcatters such as Harold Hamm and the late Aubrey McClendon, who parlayed borrowed money into billions, Bongo 76-43 is financed by Shell.

If the big boys are successful, they’ll scramble the U.S. energy business, boost American oil production, keep prices low, and steal influence from big producers, such as Saudi Arabia. And even with their enviable balance sheets, the majors have been as relentless in transforming shale drilling into a more economical operation as the pioneering wildcatters before them.

“We’ve turned shale drilling from art into science,” Cindy Taff, Shell’s vice president of unconventional wells, said on a recent visit to Bongo 76-43, about 100 miles (160 kilometers) west of Midland, Texas, capital of the Permian.

Bongo 76-43, named after an African antelope, is an example of a leaner, faster industry nicknamed “Shale 2.0” after the 2014 oil-price crash. Traditionally, oil companies drilled one well per pad—the flat area they clear to put in the rig. At Bongo 76-43, Shell is drilling five wells in a single pad for the first time, each about 20 feet apart. That saves money otherwise spent moving rigs from site to site. Shell said it’s now able to drill 16 wells with a single rig every year, up from six in 2013.

With multiple wells on the same pad, a single fracking crew can work several weeks consecutively without having to travel from one pad to other. At Bongo 76-43, Shell is using three times more sand and fluids to break up the shale, a process called fracking, than it did four years ago. The company said it spends about $5.5 million per well today in the Permian, down nearly 60 percent from 2013.

“We’re literally down to measuring efficiency in minutes, rather than hours or days,” said Bryan Boyles, Bongo 76-43’s manager.

Exxon, Shell, and Chevron will be able to spend more than independents can for service contracts and prime drilling acreage. But if the majors pursue acquisition deals, as they’ve done before, the wildcatters stand to reap the benefits.

Exxon invested big in shale in 2010 when it bought XTO Energy Inc. in a deal valued at $41 billion. For years, however, the major companies spent little on shale, instead focusing on their traditional turf: multibillion-dollar engineering marvels in the middle of nowhere that took years to build. The wells that Big Oil drilled were mostly in deep water, where a single hole could cost $100 million, rather than shale wells that can be set up for as little as $5 million each.

And:

Chevron said it estimates its shale output will increase as much as 30 percent per year for the next decade, with production expanding to 500,000 barrels a day by 2020, from about 100,000 now. “We can see production above 700,000 barrels a day within a decade,” Chevron Chief Executive Officer John Watson told investors this month.

Exxon said it plans to spend one-third of its drilling budget this year on shale, with a goal to lift output to nearly 800,000 barrels a day by 2025, up from less than 200,000 barrels now. The company doubled its Permian footprint with a $6.6 billion acquisition of properties from the billionaire Bass family. Darren Woods, Exxon’s new CEO, said shale isn’t “on a discovery mode, it’s in an extraction mode.”

The US is now the swing producer of crude oil, increasing output in the Permian Basin and other sites when prices are attractive relative to production costs, while cutting back domestic supplies and buying in oil when they are much lower.

Prices of WTI Crude oil have fallen back from $55 this month, mainly because US production has increased sharply and some OPEC producers are quietly abandoning their previously announced ‘cutbacks’. Russia promised OPEC that it would lower production but that was mainly due to the freezing weather in Siberia during January and February, and they have been increasing production subsequently.

Dyson Expands in U.K. With New Technology Campus

Dyson Ltd., the U.K. maker of high-end vacuum cleaners and hand dryers, said it's creating a new 517-acre campus in the English countryside to expand its research and development of robotics, batteries, vision systems and artificial intelligence.

James Dyson, the company's founder, announced the expansion today at the new site in the Cotswolds, about 100 miles west of London on a former military barracks and flying school. Work will start with the restoration of a former World War II airplane hangar in May with the goal of it opening by the end of the year.

U.K. Prime Minister Theresa May said in a statement that the company's expansion is a vote of confidence for the British economy following the country's decision to leave the European Union. "Dyson’s exporting strength and commitment to creating jobs in Britain is a real success story that demonstrates the opportunity that our plan to create a truly global Britain can present," May said.

Still, Dyson said the U.K. lacks enough skilled workers. An additional 640,000 engineers are needed in the U.K. by 2020, according to the company. To fill the gap, the firm pledged 15 million pounds ($18.6 million) over the next five years to create an alternative to going to university. Talented engineers will be able to work and study at the company for four years to gain hands-on experience.

“The U.K.’s skills shortage is holding Dyson back as we look to increase the amount of Technology we develop and export from the U.K.," Dyson said in a statement. "We are taking matters into our own hands."

Dyson employs 3,500 people in the U.K. Its global headquarters is in nearby Malmesbury, a campus that in addition to research and engineering labs has a helicopter in the parking lot and a jet plane hanging from the cafeteria ceiling. The company also recently opened a Technology center in Singapore where it employs 1,100 people.

While best known for its vacuum cleaners, Dyson is expanding into new areas. A $400 hair dryer introduced in 2016 took four years and $70 million to develop. The company said it has committed 2.5 billion pounds to future technologies. In 2015, the company bought the battery startup Sakti3 for $90 million, and has pledged to spend 1 billion pounds on battery development. The work has contributed to speculation the company is working on an electric car.

Email of the day on the cost of gold mining

Thank you for another very well done Friday audio. Your comments on gold were very interesting for me. I wonder if you or the collective have an idea about the possibility of technological innovation that might make gold production cheaper, the way oil production has become cheaper.. Thanks in advance

Thank you for your kind words and I am delighted you are enjoying the new format of videos and audios. Anglogold Ashanti have been pioneering a number of new technologies not least reef boring and thermal spawning. Both are designed to economically extract gold from previously uneconomic regions such as very thin reefs or the supporting walls of old mines. As with any new Technology, development takes time but the company is hopeful about the prospects for future production. This informative section from Anglogold Ashanti’s site may also be of interest.

Overextensions relative to the trend mean

We do not regard the 200-day MA moving average as a sacrosanct level where support or resistance need to be found in order to confirm the consistency of a trend. Rather we look on it as the trend mean around which prices move. In an upward trending environment we can expect the price to find support in the region of the trend mean as long as a demand dominated environment persists. Since the crowd plays such an important role in the day to day gyrations of any market prices can and do overshoot.

Siemens boosts software business with $4.5 billion deal

This article by Maria Sheahan for Reuters may be of interest to subscribers. Here is a section:

Mentor sells software and hardware used to design electronics for the semiconductor, automotive and transportation industries. The company reported a loss of $10 million in the six months ended July 31, compared with profit of $21 million in the same period last year, according to an Aug. 18 regulatory filing. The company forecast revenue of $1.22 billion for the 12 months through January.

Under Kaeser, Siemens has pushed deeper into software applications that are crucial to run its industrial equipment.

At the same time, Siemens is simplifying its sprawling portfolio, and the company announced last week that it wants to list its health-care subsidiary, among the biggest makers in the world of diagnostics and imaging equipment.

In the industrial automation sector there has been a wide gap in performance between the purveyors of hardware and software. A robot is really only a hunk of junk unless it is powered by intelligent software. Perhaps more importantly software and particularly optics companies have been innovating much faster than hardware companies not least because the relative of cost of development is so much smaller. By purchasing Mentor Graphics Siemens is aiming to provide a more holistic solution and therefore harness more of the revenue potential from industrial automation.

Email of the day

More on EU Brexit anger (note, emails are usually posted anonymously but this is an important follow-up from Dr David Brown’s online email posted yesterday, where subscribers who post emails are also named.

David,
I thought subscribers might be 'amused' by the article copied below which was published recently. The author is a British lady, hailing from the Plymouth area, and she worked for a while in the hi-tech cluster around Cambridge before moving to Brussels. If one is looking for evidence of the 'anger and fear' of the first stage mentioned above, well here it is.

One can sympathise with her angst as she sees her apparently secure career potentially undermined after Brexit, if not before. But one can only wonder how she thinks this hysterical writing will help her gain employment back in the UK. 'Throwing toys out of the pram' comes to mind.

Her prospects apart, I can only assume her text reflects the mood in Brussels. If any subscriber has direct contact with Theresa May they may wish to forward it to her!

In the Brexshit, by Claire Skentelbery, Secretary General of the European BioTechnology Network.

Her comment on the impact on UK science and our universities does need answering. It is far from the black and white she suggests. Generally 5 of our universities rank in the top 10 in the world, with the remainder of Europe struggling to make the top 20. It is often asserted that the UK's leadership depends on EU funding - if so why have other countries not kept up with the UK? It is also often asserted that the UK has received a higher percentage of funding from the EU for science than other EU countries. Our universities were strongly in favour of 'remaining' and Cambridge, where I live, was one of few cities returning a majority for 'remain', along with London.

However, the facts are not so clear. A House of Lords report published in April before the referendum states "Despite many assertions that the UK performs very well in terms of EU funding for science and research, it has proved challenging to define unambiguously the level of EU spending on R&D in the UK and how this compares with other Member States." That blows one huge hole in the statement made by Claire Skentelbery.

Another blow for her article is the unmentioned fact that a country does not need to be a member of the EU to access research funding. The House of Lords report states: "Access to many research infrastructures is available to non-EU Member States in continental Europe as well as to countries outside Europe. We found there to be occasional confusion with regards to which infrastructures are EU-managed and which are European in nature." Matt Rigby has written and presented extensively on this misconception which continues to be perpetuated by remainers.

The House of Lords report also states:

"While the UK science community was enthusiastic about EU membership, we have uncovered some qualifications. We heard mixed views on the impact of EU regulations. The benefits of harmonisation were widely recognized but some specific areas, such as genetic modification and clinical trials, were highlighted as causing UK business and research to be disadvantaged compared to competitors outside the EU."

In my own field of research, some EU regulations have been highly damaging to the UK's science base. Problems were highlighted by this article published by the FT 3 years ago: Drug test rules ‘would eliminate bioTechnology sector in UK’.

The opportunities in this new world extend well beyond funding issues. The cultural, ethical and philosophical environment that supports science is in many ways fundamentally different in the UK compared to many European countries. Britain is more inclined towards a relatively liberal risk-based regulatory environment that allows fields to move quickly — to reflect on ethical issues but not to over-regulate.

The EU, by contrast, has a record of deep regulatory conservatism, attempting to legislate and control many aspects of science that are not deemed here in the UK to present a significant danger. Consider clinical trials. In the early 1990s Britain was recognised as one of the best places in the world to test new drugs on patients. Decisions were quick and bureaucratic obstacles were few.

The introduction of the European Clinical Trials Directive in 2004 ended all this.

Needless regulatory hurdles associated with huge inefficiencies and delays in effect killed off the clinical trial industry in the UK, where it declined to just 2 per cent of global trials.

Maybe now we can regain our leadership in clinical research.

Finally, to address the issue of movement of scientists into the UK after Brexit, it beggars belief to think that skilled scientists would be denied entry. That seems highly unlikely to me.

In summary, there are gains and losses for UK science from EU membership. As you know, I voted 'remain' but only just, it was a close call. Brexit is certainly not 'all loss' as portrayed in Skentelbery's emotional and uninformed article. I am sure that UK science can thrive outside the EU once emotion fades and transitional issues are resolved.

Thank you so much David. On behalf of all subscribers you have generously offered a valuable service in speaking out on this issue. I hope readers will repost or forward this email to anyone who may be interested in it, from politicians, including the Prime Minister, to university professors, Brexiteers and also Remainers.

Exmed Conference 2016

It was a pleasure to spend the weekend and much of today at the ExMed conference in Coronado San Diego not least because there are so many people in attendance both as speakers and attendees who are at the forefront of their respective sectors.

It’s been something of a data overload so it will take some time to process the information and I will need to do some background research to check out the credibility of some of the claims made and what the possible investment implications are.

Biotechnology update

The bioTechnology sector was the darling of investors while it was trending consistently higher but has been much less trendy recently as some of healthcare’s more aggressive business strategies have become the subject of political opportunism.

Ports, a Sign of Altered Supply Chains

This article from the Wall Street Journal may be of interest to subscribers. Here is a section:

“The running joke going around is that flat is the new growth,” said Jett McCandless, chief executive of transportation-Technology startup project44.

Freight volumes are stagnating despite strong consumer spending, which rose for a fourth-straight month in July. The problem for traditional retailers: More of those dollars are being spent online, or on entertainment and services such as health care.

Many retailers are stuck with large amounts of unsold goods as a result, reducing their need to import more merchandise. Even after a year of attempting to slim down inventories, retailers’ ratio of inventories to sales, a measure of excess stocks, touched 1.5 in June, close to a seven-year high, according to the Census Bureau. In their most recent earnings reports, Target and Lowe’s reported inventories up more than 4% over the same period last year.

J.C. Penney is placing “slightly smaller orders…or holding back quite a bit” to reduce inventories, Mike Robbins, J.C. Penney’s executive vice president for supply chain, told investors in June. The company has reduced the size of some orders at the beginning of major shopping seasons by as much as 70%.

The focus on reducing inventories is proving to be a drag on growth because it signals that businesses are spending less, and might be pessimistic about future demand. Inventory drawdowns cut second-quarter growth by 1.26 percentage points, to just 1.1%.

Shipping lines are struggling to plan their routes as order volumes become more difficult to predict, said Niels Erich, spokesman for a group of 15 major shipping lines known as the Transpacific Stabilization Agreement. In the past, carriers could count on the peak summer months to make up for slower winter trade.

There is no doubt that the disintermediation which characterises online retail has a deflationary impact on how economic growth is measured because it inhibits the velocity of money. I do not view it as a coincidence that the Velocity of M2 has been contracting since 1997 when the internet began to have an impact on the retail sector.

Mylan CEO Blamed Obamacare for EpiPen Sticker Shock

This article by Jen Wieczner for Fortune.com may be of interest to subscribers. Here is a section:

Now Mylan appears to be learning the same hard lesson this week that Martin Shkreli and Valeant VRX -0.51% learned last year: Investors love when pharmaceutical companies raise drug prices—until everybody else gets really upset about it. Shares of Mylan MYL 1.66% have dropped more than 11% this week, down more than 5% on Wednesday alone.

And the EpiPen controversy is drawing comments from some high-profile figures, including Hillary Clinton and Martin Shkreli himself, who tweeted that he thought the EpiPen’s price should even be higher. On Wednesday, Clinton said there was no justification for the price hikes. Her comments came shortly after the Senate Committee on Aging asked Mylan to provide information on the reasoning behind what it called the “drastic” price increase of EpiPen, and the American Medical Association “urge[d]” Mylan to “rein in these exorbitant costs.”

The pricing scandal is happening at the worst possible time for Mylan. This is typically the company’s biggest season, driven by EpiPen sales, which peak during back-to-school shopping as parents and schools equip for the coming year.

BioTechnology companies justify the high price of new drugs with the argument that it is the only way to recoup the cost of developing them. Without high prices there would be no incentive to invest in the uncertainty of R&D and lengthy clinical trials.

Holy Grail of Energy Policy in Sight as Battery Technology Smashes the Older Order

The world's next energy revolution is probably no more than five or ten years away. Cutting-edge research into cheap and clean forms of electricity storage is moving so fast that we may never again need to build 20th Century power plants in this country, let alone a nuclear white elephant such as Hinkley Point.

The US Energy Department is funding 75 projects developing electricity storage, mobilizing teams of scientists at Harvard, MIT, Stanford, and the elite Lawrence Livermore and Oak Ridge labs in a bid for what it calls the 'Holy Grail' of energy policy.

You can track what they are doing at the Advanced Research Projects Agency-Energy (ARPA-E). There are plans for hydrogen bromide, or zinc-air batteries, or storage in molten glass, or next-generation flywheels, many claiming "drastic improvements" that can slash storage costs by 80pc to 90pc and reach the magical figure of $100 per kilowatt hour in relatively short order.

“Storage is a huge deal,” says Ernest Moniz, the US Energy Secretary and himself a nuclear physicist. He is now confident that the US grid and power system will be completely "decarbonised" by the middle of the century.

And more on Hinkley Point:

Perhaps the Hinkley project still made sense in 2013 before the collapse in global energy prices and before the latest leap forward in renewable Technology. It is madness today.

The latest report by the National Audit Office shows that the estimated subsidy for these two reactors has already jumped from £6bn to near £30bn. Hinkley Point locks Britain into a strike price of £92.50 per megawatt hour - adjusted for inflation, already £97 - and that is guaranteed for 35 years.

That is double the current market price of electricity. The NAO's figures show that solar will be nearer £60 per megawatt hour by 2025. Dong Energy has already agreed to an offshore wind contractin Holland at less than £75.

Michael Liebreich from Bloomberg New Energy Finance says the Hinkley Point saga will be taught for generations as a case study in how not to run a procurement process. "The obvious question is why this train-wreck of a project was not killed long ago," he said.

Theresa May has inherited a poisonous dossier, left with the invidious choice of either offending China or persisting with a venture that no longer makes any economic sense. She may have to offend China - as tactfully as possible, let us hope - for the scale of the folly has become crushingly obvious.

Every big decision on energy strategy by the British government or any other government must henceforth be based on the working premise that cheap energy storage will soon be a reality.

This country can achieve total self-sufficiency in power at viable cost from our own sun, wind, and waters within a generation. Once we shift to electric vehicles as well, we will no longer need to import much oil either. Rejoice.

Modern energy industries are among the biggest beneficiaries of the accelerated rate of technological innovation. The primary incentive is ‘needs must’. For this reason the US Energy Department is currently, albeit belatedly, funding approximately 75 projects dedicated to improving electricity storage capacity. Other countries with developed research capabilities are following a similar path. Electricity storage costs are plummeting and forecast to reach $100 per kilowatt hour before long. This will largely remove the ‘intermittency’ problem which is currently still the main downside for solar and wind power.

Against this background, governments should reconsider proposals for 20th century energy programmes, of which the UK’s Hinkley Point project is a classic example. It was hastily proposed on the basis that energy costs could only move higher - a dubious premise as we now know. In fact, energy prices will plummet in the years ahead, for countries which develop modern and increasingly efficient energy policies including solar, modern nuclear and also natural gas which is readily available via fracking in many countries and the least polluting fossil fuel by far.

The Hinkley Point project, far from providing a helpful source of energy, would saddle the UK with uncompetitive energy costs for at least 35 years, damaging economic prospects in the process.

Bristol-Myers Plummets as Drug Misses Key Lung-Cancer Goal

This article by Cynthia Koons for Bloomberg may be of interest to subscribers. Here is a section:

“This is a major surprise -- possibly the biggest clinical surprise of my career,” Evercore ISI analyst Mark Schoenebaum, who recommends holding Bristol-Myers stock, wrote in a note. “Investors had high expectations for this trial.”

The results reflected a risky but potentially lucrative bet by Bristol-Myers, highlighting a difference in strategy with Merck. By designing its study to include patients with lower levels of a key biomarker thought to predict response to the drug, Bristol-Myers was aiming at a far larger market for Opdivo. Merck’s Keytruda trial, meanwhile, focused on a smaller subset with high levels of the biomarker, called PD-L1 -- fewer patients, but a better chance of success.

Opdivo didn’t meet its primary goal of lengthening progression-free survival in patients with previously untreated advanced non-small cell lung cancer, compared with chemotherapy, Bristol-Myers said in a statement. The New York-based company is working on completing an evaluation of the late-stage trial’s results.

Bristol-Myers Chief Executive Officer Giovanni Caforio said the company is now focused on combination therapies, which could potentially create a better outcome for the group of patients that don’t get results on drugs like Opdivo alone.

“We have a very broad development program in lung cancer and we are answering a number of very important questions,”

Caforio said in a phone interview Friday. “The role of monotherapy might be limited to a very small subset of patients in the first-line setting, which makes our program now ideally suited to address the next question, which is: ‘What is the role of combination therapy?”’ That will come from a study that analysts said would likely read out in 2018.

As a major BioTechnology company Bristol Myers Squibb benefitted enormously from being in a position to acquire promising research in the aftermath of the TMT bubble in the 1990s. That has led it to develop a broad spectrum product range that is cash flow positive and has allowed the share to hold a progression of higher reaction lows despite the turmoil that has affected the biotech sector from last year.

Interesting charts August 2nd 2016

All but one bank met the ECB’s stress test parameters yet Commerzbank and Deutsche Bank moved to new lows today highlighting how much pressure the Eurozone banking sector is under as result of the negative interest rate environment that is eating into their profitability at just the time they need to be bolstering their balance sheets.

Biotechnology

This sector was the darling of the investment community until about a year ago when Biogen had a disappointing quarter, Valeant’s business model blew up shortly afterwards and despite the fact it is not a biotech company, the sector was hit by the same selling pressure. When politicians took aim at the high charges of drugs and new treatments, it contributed to additional selling pressure.

Musk's Solar Lifestyle Idea Has One Big Flaw

This article by Leonid Bershidsky for Bloomberg may be of interest to subscribers. Here is a section:

The commercial success of Musk's vertical integration idea hinges -- in terms of turning a profit rather than generating a high market capitalization -- on battery Technology that would have mass rather than niche appeal. The assumption upon which Musks' concept -- and Tesla's $32.3 billion market capitalization -- is built is that Tesla is betting on the right battery Technology and no one will come up with a much better one. That is the big hole in the donut: The assumption is far from safe.

Cheap and reliable energy storage is central to the idea of an off-the-grid, solar-powered household. Such a home needs energy at night, when the sun isn't shining: It has fridges, air conditioners and other appliances running, and a Tesla charging in the garage. So it needs a good battery, and Tesla's Powerwall doesn't necessarily fit the bill -- if only because the cost of the energy it supplies, including amortization, is higher than grid prices. Because of this, and given the high price of Tesla cars, the lifestyle on offer is an expensive statement. In terms of cost and convenience, it's not competitive with the traditional grid-and-fossil fuel model.

Let’s call Tesla Motor’s acquisition of SolarCity what it is; a bailout. The tide of highly attractive subsidies for solar has turned. NV Energy, Warren Buffett’s Nevada utility, successfully argued that it should not have to bear the full cost of the electrical grid when solar producers get to use it for free and get preferential rates on the electricity they supply. That represented a major upset for SolarCity in particular but also highlighted a deeper challenge for the solar leasing business model which has contributed to increased scepticism among investors about the prospects for related companies. The big question is whether other states, particularly in the sun-belt will announce similar charging structures.

This article by Michael Irving for Gizmag may be of interest to subscribers. Here is a section:

"Our unique material can kill bacteria rapidly and inhibit the development of antibiotic-resistant bacteria," says IBN Group Leader, Dr Yugen Zhang. "Computational chemistry studies supported our experimental findings that the chain-like compound works by attacking the cell membrane. This material is also safe for use because it carries a positive charge that targets the more negatively charged bacteria, without destroying red blood cells."

The team's compound was developed as an alternative to triclosan, a common ingredient in hygiene products like soap and toothpaste which has been shown to aid antibiotic resistance. The team says the new material, which takes the form of a water-soluble white powder, could be a viable replacement in these applications and could be used in alcoholic sprays used for sterilization in homes and hospitals.

"The global threat of drug-resistant bacteria has given rise to the urgent need for new materials that can kill and prevent the growth of harmful bacteria," says IBN Executive Director, Professor Jackie Y. Ying. "Our new antimicrobial material could be used in consumer and personal care products to support good personal hygiene practices and prevent the spread of infectious diseases."

If you had to name one black swan event that could derail the trajectory of global growth it is antibiotic resistance. It’s not a challenge to growth right now but there is an inevitability to the problem which gives urgency to the search for a solution. I’m an optimist so I believe a solution will be found but I tend to read every article I see on the subject because the stakes are high and the potential rewards for both companies and society are very large.

Email of the day

On Markets Now presentations:

Good morning David, Gillian and I thank you once more for an interesting evening. The presentations and the dialogues were enlightening. I have downloaded a copy of your power point presentation but could not find those from Iain and Charles. I would appreciate if you would forward them to me or direct me towards the place where I can find them. Best regards also from Gillian, Erich

You are very welcome, and thank you for travelling all the way from Switzerland. Your comments in discussions were also greatly appreciated.

To avoid overwhelming email systems and winding up in a ‘Spam’ folder, I release the PowerPoints over three days, in the sequence in which they were delivered. Here is Charles Elliott’s excellent presentation: Investing in Technology.

Genetic Superheroes?

This article from 23andMe may be of interest to subscribers. Here is a section:

A Few Examples Of How Resilient Individuals Have Already Helped Researchers
Human Knockout Project — Daniel MacArthur started this project out of his lab at Massachusetts General Hospital and the Broad Institute. He’s looking for healthy individuals with so-called loss function variants, genes that do not code for a protein. Researchers routinely “knock-out” the function of a gene in mice when studying what a gene does.

PCSK9 — The gene regulates the level of LDL cholesterol, but researchers found that certain individuals with loss function variants in the gene were protected against high lipid levels. Since the discovery several pharmaceutical companies have used this discovery to develop new therapies for combating high cholesterol.

Alzheimer’s Escapers — “Escapers” are individuals who have the genetic variants that put them at very high risk for disease, but for whatever reason never develop it. The Washington University School of Medicine is looking at families that are genetically predisposed to
Alzheimer’s Disease looking for individuals who have “escaped” getting the disease for insights into new treatments. 23andMe has also found escapers.

HIV — By identifying rare mutations in the gene CCR5 that provide resistance to HIV infection, researchers hope to find a vaccine against AIDS.

Diabetes — A few years ago researchers discovered that a variant in the gene ZNT8 protects even obese people from diabetes. Since then researchers have been using this as a possible drug target to protect against diabetes.

The movement to study healthy people as a way to identify how to treat illness is quickly gaining ground in the Technology community. After all when you go to hospital it is full of sick people but the wider world is full of people who are healthy. Doesn’t it make sense to find out why some people get sick and others don’t?

The Weekly View: A Letter to Investors, Volatility Versus Value

My thanks to Rod Smyth for his ever-interesting letter, published by RiverFront. Here is a brief sample:

Volatility has picked up in the last nine months. In our Weekly Chart below, the history of the daily range of the S&P 500 is shown in the bottom panel. Since 1982, when markets have been calm, the range between the low and the high on a given day is around 1%. During bear markets, bubbles, and crashes, the daily range spikes to around 3.5%, especially towards the latter stages. In the Weekly Chart

Below, the blue lines denote the low and high daily ranges outside the spikes. This data supports our view that investors are most fearful near the bottom and complacent during steady gains. In 1987 and 2008, the daily range was very briefly above 5%. We would describe the current level of just under 2% as the higher end of normal (denoted by the red line in the Weekly Chart below), and yet the feedback we get from our boomer and retiree clients is that it feels abnormally high.

Investors can see The Weekly View’s interesting chart in the Subscriber’s area.

In the Volatility Versus Value assessment, it may take a wise and experienced forensic accountant to confirm value or more importantly, the lack of it – consider the Valeant Pharmaceuticals International, Inc. fiasco. Also, the fundamental analytical process is inefficient in terms of time. For this reason, I am surprised that many analysts spend more effort number crunching than focussing on the relative quality of the products or services provided, not to mention the calibre of management. Genius and obsessional effort may be rare but it provides the clearest evidence of value – consider Jeff Bezos of Amazon or Steve Jobs of Apple, and his successor Tim Cook is no slouch either.

Moreover, even when genuine value is determined, a share can continue to underperform for lengthy periods before the crowd of investors takes notice – consider Cisco and Microsoft over the last decade.

Lastly, fashion is hugely important in terms of market performance and that is the province of common sense technical analysis. Monitor momentum and be careful when a share or index loses trend consistency, let alone becomes very overextended relative to the 200-day (40-week) moving average – consider the Nasdaq BioTechnology Index.

Medical Devices

I pointed out a few weeks ago that while the biotech sector remains at risk of underperforming, as it continues to unwind the speculative surge when it accelerated higher last year, that other parts of the emerging healthcare sector continue to perform favourably and this is particularly true of medical devices where a number of consistent uptrends are evident.

Valeant Plunges Most Ever on Forecast Cut, Warning Over Debt

This article by Cynthia Koons and Caroline Chen for Bloomberg may be of interest to subscribers. Here is a section:

“We have to earn back the credibility,” Pearson said in his first public remarks since returning from a medical leave two weeks ago. “We have to deliver on results. We have to meet or exceed this guidance,” Pearson said during the call. “It’s a bit of a starting over point for me and this company.”

Laval, Quebec-based Valeant is at risk of violating its debt agreements, putting it at the mercy of its creditors, since it will be late filing its annual report. Valeant said it must file its 10-K by March 30 to avoid triggering cross-defaults that would restrict it from being able to further tap its credit line. It won’t be able to meet that deadline and will begin asking lenders next week to amend the credit agreement so that a default is waived.

in the lengthy conference call this morning Valeant corrected what they called a typo in the press release which had overstated earnings, they announced they were changing the way they calculated the tax they paid and announced that guidance would be lower. Investors took flight and the share fell 51.80%.

Wall Street Oldie But Goodie

If you conclude that Wall Street is still in its bull market, and S&P Capital IQ and WSJ.com, believe so, then it is the third longest bull market, presumably in modern history. Of course many commentators disagree and it has certainly not felt like a bull market since at least mid-2015. The Dow Jones industrial Average has fallen 21.69%, the Dow Jones Transport Average by 21.69%, the Russell 2000 fell 27.25% and the Nasdaq 100 Index just qualifies for the arbitrary 20% bear market with a decline of 20.01%. However, the Nasdaq Composite Index has only fallen 19.54% while the S&P 500 Index is comparatively resilient having only lost 15.21% at its January and February lows.

Well, apologies for sounding like a stats wonk, but to me what we have seen is more bearish than 2011 when the S&P fell just below 20% on an intraday basis, as I recall. Moreover, this time iconic Apple and the previously sector-leading Nasdaq BioTechnology Index has fallen back from the sky.

How Technology Could Unwind a Decade-Long Trend in Global Trade

Two of the biggest forces influencing global economic activity over the past three decades—globalization and automation—have had polar-opposite effects on workers in emerging markets.

The former pushed multinationals to move production to countries with cheaper labor costs than advanced economies, while the latter effectively substitutes capital for labor in the production process.

In a note to clients, analysts at the Goldman Sachs Group Inc. led by Senior Asia Economist Goohoon Kwon discuss how these trends have affected the global trade picture.

To the extent that robots become a less expensive input than labor in the production process, multinationals will be encouraged to "onshore" output to move it closer to their customer bases. This would mark an unwind of the long-standing trade formula, which had the growth of global supply chains at its heart, and it is a net negative for global trade that would have far-reaching consequences.

There are nascent signs that this process may be in the works, as emerging market nations in Asia have seen export volumes nose-dive despite continued growth among their major trading partners:

This is a hugely important development, and one that this service has discussed occasionally over the years. Briefly, developed economies suffered during the earlier years of globalisation because their labour costs and currencies were too high, relative to developing economies. This hollowed out industries in developed countries, as jobs and production facilities were moved overseas, with the Asia Pacific region being the biggest beneficiary.

Deflation? It is Behind You!

If, like me, you’ve spent your entire adult life fearing inflation as the universal bogie, welcome to the pantomime world of Post-Modern economics. Because there’s another bogie even worse: it’s called deflation. For those of you who are not familiar with the great British tradition of Christmas pantomime, the heroes of the drama innocently face the audience, while the monster always sneaks up from behind. And the kids all shriek: It’s behind you!

Let’s be clear about terms. Inflation is the rate at which the price level rises over a given period (normally a year); deflation is the exact opposite: the rate at which the price level falls. (Disinflation – insofar as economists agree at all – is the rate at which inflation falls and is an intellectual nonsense that should be ripped out of the economic textbooks.)

Why all the fuss about deflation?

In the brave new world that emerged after the dust clouds of the Credit Crunch dispersed,monetary policy, previously the domain of academic economists, took centre stage. Just asdemand management (to obtain full employment), the universal mantra from the 1940s to the late 1970s, gave way to the fight against inflation in the 1980s, and then to sustainable non-inflationary economic growth from the 1990s to the first years of the new century, so changing economic conditions have heralded new economic priorities.

In the September 2015 edition of this magazine (Interest Rates are Due to Rise – or Maybe Not) I reflected that central bank chiefs, these days, are more prominent and more influential than finance ministers. The world is actually now run by this high priesthood of unelected sages whose awesome responsibility it is (exercised largely away from the prying eyes of elected legislatures) to do three things.

They set interest rates (essentially, they fix the price of money); they regulate the banking system; and (most obscurely) they maintain price stability. But in practice, these three things amount to managing the money supply. Put very crudely, too much money in the system (and most money is in the form of credit) and prices go up (inflation). Too little money in the system and prices go down (deflation).

There has been plenty of disinflation and deflation in the global economy in recent years and counting. Most commentators regard it as a frightening problem. Well, yes, if one has lots of debt, which becomes more of a burden in a deflationary environment, because the cost of capital is increasing in real terms and salaries for many people will actually be declining. Conversely, in an inflationary environment the cost of debt is declining in real terms, and most salaries will be increasing.

What the article above does not discuss, is the crucial difference between destructive deflation and positive deflation.

Beware Biotech Secondary Swarm

Monday was a possibly record-setting day for biotech IPO announcements. Tuesday looks to have been the same for secondary offerings in the industry.

Eight different biotechs announced equity financing efforts that day, and another three announced on Wednesday. We only have pricing for some of the offerings, but Bloomberg puts the total amount firms hope to raise so far at more than $1.2 billion.

The market was less than enthused: Every single one of the companies that filed on Tuesday traded lower on Wednesday, several of them down as much as 20 percent. No one quibbles with the idea that biotechs need to raise money to develop drugs or operate. But the timing seems off: These secondaries come in the middle of a nasty selloff in the broader market -- not exactly the most favorable environment. It is a far cry from the early part of 2015, when biotechs often saw big price gains after a secondary.

It is at least slightly better timing than last autumn, when pharma and biotech were getting hammered. And the filings come just ahead of JPMorgan's health care conference next week, a good time to talk up a company trying to raise money.

This week’s slide by the Nasdaq BioTechnology Index provides further evidence that last year’s runaway stock market success story has an extended top formation, which will bring valuations for its more expensive shares closer to Earth.

The Last Innings

Thanks to a subscriber for this report from Goldman Sachs which may be of interest. Here is a section:

While it is hard to gauge the extent to which these three factors have slowed this recovery we believe that they have had some impact. The long-term benefits of information Technology will likely more than offset such short-term disruptions to fixed asset investments. Similarly, we think the drag from offshoring to China has run its course as China has become a less competitive exporter.

With respect to the excess capacity from China and the drag on global growth, we believe that China’s ongoing investments in new industries such as airplanes and arms will affect the profitability of other multinational companies, reduce their prospective growth trajectories and indirectly lower growth in fixed asset investments.

Finally, we conclude with some data from the seminal work on financial crises by Carmen Reinhart and Kenneth Rogoff, This Time is Different: Eight Centuries of Financial Folly, which shows that the recoveries from financial crises are systematically more muted.44 What is most relevant in the context of our cautiously optimistic outlook for growth and financial markets is the fact that in the 10-year windows following severe banking crises that Reinhart and Rogoff examined, growth picked up substantially in the second five year period relative to the first. In the post-WWII era, on average, developed economies grew 2.1 percentage points faster in the second five-year period relative to the first five years after the onset of the crisis. Similarly, emerging market economies grew an average 3.2 percentage points faster.

The news headlines are afire with tales of terrorism, war, environment disaster and human misery and yet the stock market has been rallying for more than six years. There is no doubt geopolitical tensions have increased and the Fed is raising rates, from incredibly low levels, for the first time in almost a decade.so there is some justification for anxiety. However that does not mean all stocks are performing in a similar manner.

This article by Julia Pyper for GreenTechMedia may be of interest to subscribers. Here is a section:

The Nevada Public Utility Commission voted unanimously in favor of a new solar tariff structure on Tuesday that industry groups say will destroy the Nevada solar market, one of the fastest-growing markets in the country.

The decision increases the fixed service charge for net-metered solar customers, and gradually lowers compensation for net excess solar generation from the retail rate to the wholesale rate for electricity, over the next four years. The changes will take effect on January 1 and will apply retroactively to all net-metered solar customers.

The broad application of the policy sets a precedent for future net-metering and rate-design debates. To date, no other state considering net-metering reforms has proposed to implement changes on pre-existing customers that would take effect right away. Changes are typically grandfathered in over a decade or more.

Renewable energy and distributed generation are two of the greatest threats to established utilities in the sun-belt. If people can generate their own electricity at home, sell excess onto the grid at a favourable rate and only take from the base load provider when necessary, they are put in a highly advantageous position relative to the utility. On the other hand utilities are accustomed to a highly regulated market but not to competition.

What Just Happened in Solar Is a Bigger Deal Than Oil Exports

This article by Tom Randall for Bloomberg may be of interest to subscribers. Here is a section:

The extension will add an extra 20 gigawatts of solar power—more than every panel ever installed in the U.S. prior to 2015, according to Bloomberg New Energy Finance (BNEF). The U.S. was already one of the world's biggest clean-energy investors. This deal is like adding another America of solar power into the mix.

The wind credit will contribute another 19 gigawatts over five years. Combined, the extensions will spur more than $73 billion of investment and supply enough electricity to power 8 million U.S. homes, according to BNEF.

"This is massive," said Ethan Zindler, head of U.S. policy analysis at BNEF. In the short term, the deal will speed up the shift from fossil fuels more than the global climate deal struck this month in Paris and more than Barack Obama's Clean Power Plan that regulates coal plants, Zindler said.

As I mentioned in yesterday’s commentary. The renewable energy sector is being challenged by the increasingly competitive price structure of fossil fuels but is likely to be supported by regulation for the foreseeable future. With interest rates beginning to rise and capital for infrastructure projects beginning to dry up the announcement tax credits will be extended for an additional 5 years represents a windfall for solar companies.

Email of the day 2

On bioTechnology and market timing:

Dear David

My name was mentioned in the email of the day yesterday on bioTechnology so I thought it would be timely to add some thoughts.

On the question does one buy and hold bioTechnology shares or funds, some interesting data was published earlier this year by Steve Sjuggerud, who is a very experienced and successful investor living in Florida. He back-tests market data extensively. His back-testing showed that from 1983 until his publication in early 2015 you would have made 21.5% a year on average following buy and hold in a bioTechnology index. I think that beats Warren Buffett. But is a very tough ride as there are large booms and busts. So he then went on to say that a simple trend-following strategy can help avoid the large busts and can improve returns significantly. He suggested using monthly data and buying biotech stocks when they close above their 6-month moving average, and selling when they close below their 6-month moving average. His back-testing indicated this strategy would have delivered a compound annual gain of 30.8% since 1983. One has to stomach many whipsaws, as with any trend-following strategy.

Personally, I add another nuance. This is a rule I follow in my own investing, and it featured in my Markets Now presentation in London on 15 June 2015. The slides are available on Fuller Treacy Money website. Look at slide 6 for the rules, and slide 7 for the data on which they are based. This concerns the market overall, not bioTechnology specifically. If the yield curve remains positive (as it is today) there is a strong probability that the overall bull market remains intact. Nevertheless, this has worked only about 70% of the time historically over the past 100 years. The other 30% of times when markets fell substantially have generally been during the market ‘weak season’ May-October which David mentions regularly. As a safeguard I go 50% cash during this time. I went 55% cash during May-June this year and sold about 90% of my bioTechnology holdings.

In addition to the market weak season, another factor that made me lighten my bioTechnology positions is that they had become significantly over-extended relative to the 200 day moving average. Mean reversion is highly likely when price gets 30-40% above the 200 day moving average. David and Eoin refer to this very often.

My own investing in quoted bioTechnology is guided by the three factors described here. I gave a lot more detail on bioTechnology in another presentation titled ‘The Third Industrial Revolution’, at Markets Now on 23 February 2015. Again, the slides are available on the website.

I hope this is helpful.

Best wishes David, and I hope to see you sometime in December or January, after my travels are finished at end November (I will be helping at the orphanage I support in South Tibet).

My thanks to David Brown for this wonderfully educative email which he posted on the FTM site today. I reproduce it here to ensure that subscribers see it.

The advantage of an interactive website is that we can learn from each other, not least as the level of knowledge and experience within the Collective of Subscribers is enormous. Thank you for sharing your thoughts.

SolarCity Unveils World's Most Efficient Rooftop Solar Panel, To Be Made in America

This press release from SolarCity may be of interest to subscribers. Here is a section:

SolarCity will begin producing the first modules in small quantities this month at its 100 MW pilot facility, but the majority of the new solar panels will ultimately be produced at SolarCity’s 1 GW facility in Buffalo, New York. SolarCity expects to be producing between 9,000 - 10,000 solar panels each day with similar efficiency when the Buffalo facility reaches full capacity.

SolarCity’s panel was measured with 22.04 percent module-level efficiency by Renewable Energy Test Center, a third-party certification testing provider for photovoltaic and renewable energy products. SolarCity’s new panel—created via a proprietary process that significantly reduces the manufacturing cost relative to other high-efficiency technologies—is the same size as standard efficiency solar panels, but produces 30-40 percent more power. SolarCity’s panel also performs better than other modules in high temperatures, which allows it to produce even more energy on an annual basis than other solar panels of comparable size.

SolarCity initially expects to install the new, record-setting solar panel on rooftops and carports for homes, businesses, schools and other organizations, but it will also be excellent for utility-scale solar fields and other large-scale, ground level installations.

The low price of oil and other energy commodities has taken a toll on the moveable feast of solar power breakeven calculations. The sector simply has to continually introduce more efficient products and there is good reason to expect it will. Solarcity’s announcement of a production-ready panel sporting 22% efficiency is great news provided the final announced price is competitive. In the lab efficiency rates of over 40% are achievable but it’s a big leap from a sterile environment to rooftops. This is the primary reason SolarCity’s announcement is important.

Email of the day

On the First Trust NYSE Arca BioTechnology Index Fund (FTB):

Hi David

How very prescient you were about biotechs! On the 13th March [Email of the day 4] you wrote about looking out for an upside tail on the weekly chart, and said "You could ride out the next mean reversion as a long-term investor but do not be surprised if it comes back to 100."

And what happened? The very next week there was an upside tail. That top was subsequently taken out, but now we ARE below 100! Which indeed is much lower than I expected at the time.

I took the first course, riding out the mean reversion (and more) and am now holding on. Trusting that your long-term assessment - "I do not doubt for a second that bioTechnology has a terrific long-term future" - is as correct as your short-term one was! In my decision to do this I was definitely influenced by the knowledge that that is what you habitually do with your long-term positions, even in critical situations like 2008, and that it has paid off for you in the long term. And that in my own trading I have always - through decades - made money on shares and lost on the trading. So now I have only long-term positions, finally having seen the light.

Once again thanks to you and Eoin for being such marvellous guides to this choppy universe.

Thank you for your kind words and for raising, once again, such an interesting topic. You are playing to your strengths, which makes sense for every investor.

Leveraged trading is exhilarating when successful but also traumatic when it goes wrong, as it inevitably does from time to time. It is also much more difficult than unleveraged investing, because 10 to 1 gearing clearly involves short-term money control challenges. Therefore sensible people either keep leveraged trades very small relative to their capital, or build-up positions on a Baby Steps basis, protected with in-the-money trailing stops. However, this latter tactic needs the luck of significant and orderly trends to be profitable. They are often the exception rather than the rule, so disciplined traders will often find that they are frequently stopped out with small profits or losses, even if they have anticipated the overall direction of the trend.

As for riding out your unleveraged FTB position, it is near $100 today but it briefly fell much lower on the August 24th temporary meltdown, probably due to high-frequency trading, although I have no confirmation of this having been on holiday at the time. I hope you were similarly distracted from the markets on that day, because it would have been traumatic for many people. For this reason I am repeating the tactical paragraph from my reply to your email posted on 13th March, for dealing with positions where the trend has accelerated in your favour:

Valeant Plummets as Democrats Seek Subpoena on Drug Prices

This article by Caroline Chen for Bloomberg may be of interest to subscribers. Here is a section:

“We believe it is critical to hold drug companies to account" when they buy old drugs and raise their prices, 18 Democratic representatives wrote in a letter to Jason Chaffetz, the chairman of the House’s committee on oversight and government reform. They highlighted Valeant’s heart drugs Nitropress and Isuprel, whose prices increased by 212 percent and 525 percent the day that Valeant acquired the rights to sell them.

Valeant’s shares have fallen for three straight days after Democratic presidential candidate Hillary Clinton said last week that she would reform the drug industry to protect consumers from price hikes. Clinton was responding to media reports on Turing Pharmaceuticals AG Chief Executive Officer Martin Shkreli, a former hedge fund manager who raised the price of a decades-old antibiotic 50-fold, to $750 a pill from $13.50 a pill, after acquiring it.

Clinton outlined a plan that included a mandate on research and development spending, a proposal which could hurt companies like Valeant that rely on serial acquisitions to build a pipeline of drug candidates. Last year, Valeant spent $246 million on R&D, far less than companies of similar size, according to data compiled by Bloomberg.

Mrs. Clinton might be flagging in the polls but she remains the odds on favourite to become President and this type of populist rhetoric is bad news for the once highflying biotech sector. Ground breaking innovative therapies are expensive to develop and while there is clearly an argument drug prices are much higher in the USA than just about anywhere else, this is a situation that would be best handled in a nuanced fashion rather than the vote seeking approach currently being pursued.

Email of the day on Tesla

My hunch - but I may be wrong - is that electric cars are relatively easy to build... there is not much Technology in an electric engine, no complexity; as for the batteries (which I understand are Panasonic's in the case of Tesla, which assembles them together in very large modules) I understand that the know how is not really in the hands of Tesla or any other producer (even Renault/Nissan stopped developing in house Technology) and therefore someone else did the clever job.

As a first mover Tesla has very competently built a good product, taking risk only where strictly necessary: luxury brand (low risk) with traditional, long bonnet, probably off the shelf design (low risk), an old chassis for the roadster, well tested batteries. Also, the complexity of electric power train - compared even with a small 1ltr engine - is little: there are fewer (almost none in fact) moving parts, no gear box. No way a new producer could enter the industry with its own internal combustion engines, but the electric car gives this opportunity. A good demonstration of this is that Tesla's provisions for warranties are in line with those of a mature manufacturer with a well-tested line up of cars... probably Tesla know that there is so little in an electric car that can actually go wrong.

Traditional producers have held off from making a proper move into the sector not to cannibalize their current products and make all R&D and Capex in a probably obsolete Technology completely worthless. After all they can catch up quickly: the difference between a Tesla, and a BMW or Nissan Leaf or 500e is purely the size of the battery, whose development risk is not theirs... On paper, a Leaf may have the range of a Tesla simply by doubling the size of the battery. In the meanwhile, no necessity of taking the risk of killing their current baroque business model, made of V12, V6, boxer, in line 4 or 3 or 2 cylinder hyper complex engines that you have to service all the time and last 300k when of exceptional quality.

Traditional car manufacturers will "tolerate" Tesla as far as it does not build a too strong brand (ludicrous speed is genius by the way: intrinsic of electric engine, easy to do, but presented as cool high tech stuff), then move in and with their economies of scale and less vertically integrated structure quickly catch up... it will be dear, but unavoidable as Tesla made clear it is possible to achieve a usable and fun product with no petrol engine.? VW making its move,? but I guess everyone if working on something.

What I think could get ugly in this story - from the point of view of Tesla shareholders - is the excessive use of dodgy accounting (there are examples), the glorification of the CEO and its ideas (never good in a plc), just to get hold of capital for a venture that is extraordinarily risky and liable to competitive pressures from corporations much larger and much more sophisticated. How far will the individual Musk go to keep the business going? He is very successful, people love him, Tesla S has been voted best car ever. Difficult to give that up, right?

Did not look at the other businesses of his, with Space X he is against defence and/or state run companies... difficult.

Thank you for this detailed email and I agree that with valuations as they currently stand Tesla does not have a great deal of margin for error. The company has lost money in every quarter since 2013 but less than analysts estimated which has helped support the massive run-up in prices.

Yingli Fights to Survive as Another Solar King Dethroned

This article by Alex Nussbaum for Bloomberg may be of interest to subscribers. Here is a section:

One of those investments was the 2009 purchase of Cyber Power Group Ltd. for $77.6 million, a company that makes polysilicon, the main raw material in solar cells. Yingli’s founder and Chief Executive Officer Miao Liansheng invested another $270 million to upgrade the plant. The project made more sense then, when the material sold for $400 a kilogram; today, it can be bought for less than $20, said Angelo Zino, an S&P Capital IQ analyst in New York.

Yingli spent aggressively on marketing as well, including sponsoring the World Cup. Its logo was prominent during matches in Brazil last year. “They spent on capacity, they spent quite a bit on marketing,” Sanganeria said. “They took everything to the extreme.”

Suntech and Q-Cells faced similar issues, borrowing to expand capacity and then finding themselves constrained by debt, said Raymond James’ Molchanov. Both struggled to cut manufacturing costs fast enough to keep up with the market. The challenge was exacerbated starting in 2011 when slowing demand in Europe led to a global oversupply of panels and falling prices.

The problem for solar cell manufacturers is that the primary bullish case for solar is that Moore’s law can now be applied because it is a Technology rather than an extractive resource. This means companies relying on producing legacy products, when Technology is advancing rapidly are being left behind and often with high debt loads.

This Preschool Is for Robots

This article by Jack Clark for Bloomberg may be of interest to subscribers. Here is a section:

What makes Brett’s brain tick is a combination of two technologies that have each become fundamental to the AI field: deep learning and reinforcement learning. Deep learning helps the robot perceive the world and its mechanical limbs using a Technology called a neural network. Reinforcement learning trains the robot to improve its approach to tasks through repeated attempts. Both techniques have been used for many years; the former powers Google and other companies’ image and speech recognition systems, and the latter is used in many factory robots. While combinations of the two have been tried in software before, the two areas have never been fused so tightly into a single robot, according to AI researchers familiar with the Berkeley project. “That’s been the holy grail of robotics,” says Carlos Guestrin, the chief executive officer at AI startup Dato and a professor of machine learning at the University of Washington.

After years of AI and robotics research, Berkeley aims to devise a system with the intelligence and flexibility of Rosie from The Jetsons. The project entered a new phase in the fall of 2014 when the team introduced a unique combination of two modern AI systems&and a roomful of toys—to a robot. Since then, the team has published a series of papers that outline a software approach to let any robot learn new tasks faster than traditional industrial machines while being able to develop the sorts of broad knowhow for solving problems that we associate with people. These kinds of breakthroughs mean we’re on the cusp of an explosion in robotics and artificial intelligence, as machines become able to do anything people can do, including thinking, according to Gill Pratt, program director for robotics research at the U.S. Defense Advanced Research Projects Agency.

And

Part of why the robotics industry is so interested in the type of AI in development at the Berkeley lab is because, unlike with most emerging Technology, it already works really well, says Abbeel. “Everybody who tries something seems to get things to work beyond what they expected,” he says. “Usually it’s the other way around.” The work has piqued the interest of executives at Dyson, Fujitsu, Siemens, Toyota, and several startups, who have visited the lab, Abbeel says.

Technological innovation is proceeding at such a rapid rate that people depending on low skilled work are being replaced. This is particularly true of factory settings that do not require movement over potentially rough terrain. Education, upskilling, individual creativity and product customisation are more important than ever if individuals are to thrive in an environment where industrial automation is proving to be a powerful competitor.

Emerging Markets Rout Spreads to U.S. Stocks as Gold Rallies

This article by Stephen Kirkland and Jeremy Herron for Bloomberg may be of interest to subscribers. Here is a section

Even as losses intensify, the S&P 500 remains stuck in the tightest trading range since 1927, down 3.5 percent from a record reached in May. The benchmark has fallen through its average price for the past 200 days for the fourth time this month.

Selling today was heaviest in some of the bull market's biggest winners. Netflix Inc. lost 8.5 percent, while media stocks were poised for a correction as Walt Disney Co. tumbled 5 percent amid an analyst downgrade. Bank of America Corp. and Citigroup Inc. slumped more than 2.7 percent to pace declines among the largest banks.

"We have been conditioned to buying on the dip," said Quincy Krosby, a market strategist for Newark, New Jersey-based Prudential Financial Inc., which oversees more than $1 trillion. "What's happening is that investors want that dip deeper. It's no longer a knee-jerk reaction to buy on the dip because the Fed will underpin the market. Investors are being much more cautious and not as sure that the Fed will be there."

Bullish sentiment at the top of a range and more bearish sentiment at the bottom are typical in any congestion area. However we also know that ranges are explosions waiting to happen and this is particularly true following an environment which has been relatively inert. With the S&P500 now testing the psychological 2050 area market participants are understandably skittish but also looking for a reason to buy.

Why AI Could Destroy More Jobs Than it Creates, and How to Save Them

Here is a section commenting on Erik Brynjolfsson, an economist at the Massachusetts Institute of Technology (MIT) and co-author of The Second Machine Age:

Brynjolfsson points out that the rate of technological change is of a different order in the information age to the industrial revolution.

"I think it's going to require a similar level of overall change but it's probably going to have to happen faster. The steam engine was a remarkable breakthrough and really set off the industrial revolution, but as we say in the book it doubled in power and efficiency approximately once every 70 years and quadrupled after 140 years," he said.

"The computer processor doubles in power every 18 months, 10 times greater every five years, it's a very different scale of advancement and it's affecting a broader set of the economy than the steam engine did, in terms of all the cognitive tasks. It's happening a lot faster and more pervasively than before."

But is it correct to link the rate of societal change, and of advances in artificial intelligence, to the breakneck pace at which processors are becoming more powerful? Not everyone agrees.

Nick Jennings, professor of Computer Science at Southampton University has years of experience working with agent-based computing and intelligent systems. He doesn't foresee runaway advances in the field of AI that will reverberate throughout the rest of society.

"[I don't see] major shifts, no," said Jennings. "I see a gradual increase in automation and a gradual increase in the software tools that people have to support them in their day-to-day work. I don't see any non-linearities, I see processing getting better, speeds getting better, more data becoming available and us running more complicated algorithms on that data. I don't see anything that is going to cause a phase change or a disjunction in one go.

Even with computing technologies improving at that "steady, inexorable" rate, jobs may be being destroyed faster than they are created.

For most of the second half of the twentieth century the economic value generated in the US - the country's productivity - grew hand-in-hand with the number of workers. But in 2000 the two measures began to diverge. From the turn of the century a gap opened up between productivity and total employment. By 2011, that delta had widened significantly, reflecting continued economic growth but no associated increase in job creation.

Veteran subscribers will know all about this problem of jobs creation during an accelerating rate of technological innovation, particularly in terms of software. This service has been commenting on it for a number of years.

We know that new jobs are being created, even some as a consequence of software developments, but they are not keeping up with job replacements. Also, they are often lower paid jobs.

This report, posted in the Subscriber's Area, has some graphics which should interest you, not least a comparison of Labor Productivity and Private Employment.

Who benefits most from the loss of jobs? Inevitably, corporations and to a lesser extent governments.

Here is an early, prescient quote from the article on this subject:

“The role of humans as the most important factor of production is bound to diminish in the same way that the role of horses in agricultural production was first diminished and then eliminated by the introduction of tractors.”

Uri Avnery: The Treaty

What if the wily Persians did not even dream of building an atomic bomb, but used the threat to further their real aims?

What if Binyamin Netanyahu was duped to become unwittingly the main collaborator of Iranian ambitions?

Sounds crazy? Not really. Let’s have a look at the facts.

IRAN IS one of the oldest powers in the world, with thousands of years of political experience. Once they possessed an empire that spanned the civilized world, including our little country. Their reputation for clever trade practices is unequaled.

They are much too clever to build a nuclear weapon. What for? It would devour huge amounts of money. They know that they would never be able to use it. Same as Israel, with its large stockpile.

Netanyahu’s nightmare of an Iranian nuclear attack on Israel is just that – a nightmare (or daymare) of an ignorant dilettante. Israel is a nuclear power with a solid second-strike capability. As we see, the Iranian leaders are hard-boiled realists. Would they even dream of inviting an inevitable Israeli retaliation that would wipe from the face of the earth their three-millennia-old civilization?

(If this capability is defective, Netanyahu should be charged and convicted for criminal negligence.)

Even if the Iranians did deceive the whole world and build a nuclear bomb, nothing would happen except the creation of a “balance of terror”, such as saved the world at the height of the cold war between America and Russia.

The people around Netanyahu pretend to believe that, unlike the then Soviets, the Iranian mullahs are crazy people. There is absolutely no evidence for that. Since their 1979 revolution, the Iranian leadership has not made one single important step that was not absolutely rational. Compared to American missteps in the region (not to mention the Israeli ones), the Iranian leadership has been thoroughly logical.

So perhaps they traded their nonexistent nuclear designs for their very real political design: to become the hegemon of the Muslim world.

If so, they owe a lot to Netanyahu.

WHAT HAS the Islamic Republic ever done in its 45 years of existence to harm Israel?

Sure. Tehran crowds can be seen on television burning Israeli flags and shouting “Death to Israel”. They call us, not flatteringly, “the Little Satan”, as compared to the American “Great Satan”.

errible. But what else?

Not much. Perhaps some support for Hezbollah and Hamas, which were not their creation. Iran’s real fight is against the powers that be in the Muslim world. They want to turn the region’s countries into Iranian vassals, as they were 2400 years ago.

If this interested you, read on because it gets even better. It is also far more plausible, in my opinion, than some of the dark, apocalyptic forecasts that I have seen.

This site has previously forecast that lower oil prices, mainly between $70 and $40 in real terms, represent a permanent change. This is due to technological innovation from fracking to more efficient usage, plus substitution from natural gas to renewables.

Fintech reloaded Traditional banks as digital ecosystems

Thanks to a subscriber for this report from Deutsche Bank which may be of interest to subscribers. Here is a section:

Isolated solutions are often only implemented in a fragmented fashion from division to division. Innovation processes are still being driven forward laboriously using an outdated silo approach. Furthermore, many banks' command of the global “language of the internet” is still deficient. The banks will not achieve resounding success using such methods. Digital change requires far-reaching structural reforms that extend beyond all internal and external bank processes and systems.

The new market players from the non-bank sector, by contrast, have an almost perfect understanding of the language of the internet. First and foremost it is the scarcely regulated digital ecosystems, but there are also many fintechs that are using their platforms and ingenious “walled garden” strategies to dominate markets across a range of sectors. Their recipe for success is based on the harmonious interplay between implemented hardware and software. Via the optimum interlinking and utilisation of compatible and interoperable standards/technologies we – the platform-spoiled consumers – are courted with attractive products and services conveniently, globally and from a single source.

Traditional banks could do this, too, however. This now provides the opportunity to swiftly learn and adopt the strengths and particularly the monetarisation strategies (walled gardens) of the successful digital ecosystems.

There are many benefits to be gained by banks that transform themselves into platform-based, digital banking ecosystems. Apart from easy access to numerous personalised products and services, including those of external providers, as well as a more secure IT environment, the customer can also make interactive contributions on the financial platform in a variety of useful networks. Furthermore, the banking ecosystem offers a flexible corporate architecture that will in future enable as-yet-unimagined technologies to be docked onto one's own infrastructure in a timely fashion and at an acceptable cost.

Fintech (finance Technology) is rapidly advancing as the evolution of the block chain, demand for enhanced online services and the economies of scale represented by services delivered online coalesce to drive the sector’s growth.

The Way Humans Get Electricity Is About to Change Forever

This article by Tom Randall for Bloomberg may be of interest to subscribers. Here is a section:

The price of solar power will continue to fall, until it becomes the cheapest form of power in a rapidly expanding number of national markets. By 2026, utility-scale solar will be competitive for the majority of the world, according to BNEF. The lifetime cost of a photovoltaic solar-power plant will drop by almost half over the next 25 years, even as the prices of fossil fuels creep higher.

Solar power will eventually get so cheap that it will outcompete new fossil-fuel plants and even start to supplant some existing coal and gas plants, potentially stranding billions in fossil-fuel infrastructure. The industrial age was built on coal. The next 25 years will be the end of its dominance.

2. Solar Billions Become Solar Trillions
With solar power so cheap, investments will surge. Expect $3.7 trillion in solar investments between now and 2040, according to BNEF. Solar alone will account for more than a third of new power capacity worldwide. Here's how that looks on a chart, with solar appropriately dressed in yellow and fossil fuels in pernicious gray:

3. The Revolution Will Be Decentralized
The biggest solar revolution will take place on rooftops. High electricity prices and cheap residential battery storage will make small-scale rooftop solar ever more attractive, driving a 17-fold increase in installations. By 2040, rooftop solar will be cheaper than electricity from the grid in every major economy, and almost 13 percent of electricity worldwide will be generated from small-scale solar systems.

The pace of technological innovation in solar is rapid and the argument that Moore’s law is applicable is gaining ground as the sector attached increasing research and development spending. The difficulties reported in getting the Ivanpah concentrated solar facility, in the Mojave Desert, up to peak performance is a setback suggesting the time required to deliver new technologies might be longer than some are currently envisaging. Here is a section from a Huffington Post piece dated November 17th:

"During startup we have experienced ... equipment challenges, typical with any new Technology, combined with irregular weather patterns," NRG spokesman Jeff Holland said in a statement. "We are confident that Ivanpah's long-term generation projections will meet expectations."

The Technology used at Ivanpah is different than the familiar photovoltaic panels commonly used for rooftop solar installations. The plant's solar-thermal system — sometimes called concentrated-solar thermal — relies on nearly 350,000 computer-controlled mirrors at the site, each the size of a garage door.

S&P 500 and its primary sector ETFs

The market is at an interesting juncture. The S&P is up less than 2% this year and been largely rangebound since late last year. A somewhat lengthier range after a particularly consistent advance suggests supply and demand have come back into equilibrium. Among the arguments propounded by the cautious camp are that valuations, not least the CAPE have increased and earnings have deteriorated. There is fear that the Greek issue will spill over into a bigger problem and that the Fed may raise interest rates in September.
Among the more optimistic arguments are that banks are outperforming, technological innovation is delivering new products which have the potential to improve productivity and energy prices are less of a headwind. Global central banks are also flooding the market with liquidity but the Fed has stopped adding new money.

From cars to power grids: battery technology from Daimler is accelerating the transition to renewable energy generation

This article from Daimler highlights its entry into the domestic and commercial energy storage sectors. Here is a section:

Daimler is entering into business in the field of stationary energy storage plants with its one hundred percent subsidiary Deutsche ACCUmotive. The first industrial-scale lithium-ion unit is already on the grid and is being operated by the partner companies The Mobility House AG and GETEC Energie AG. For business with private customers in the area of energy storage in Germany, Daimler AG is planning to collaborate with EnBW AG. Daimler is also aiming to enter into cooperation with other sales and distribution partners both in Germany and at international level. "Mercedes-Benz energy storages provide the best confirmation that lithium-ion batteries Made in Germany have a viable future," says Harald Kröger, Head of Development Electrics/Electronics & E-Drive Mercedes-Benz Cars. "With our comprehensive battery expertise at Deutsche ACCUmotive we are accelerating the transition to sustainable energy generation both on the road and in the field of power supply for companies and private households. The Technology that has proven its worth over millions of kilometres covered in the most adverse conditions, such as extreme heat and cold, also offers the best credentials for stationary use. We have been gathering initial experience in this field since 2012."

Daimler was in the news last month for its introduction of driverless haulage vehicles to Nevada following the state’s legislation on autonomous vehicles. The company’s entry into the domestic and commercial energy storage sectors is equally ground breaking and suggests it has ambitions of being a pioneer in the future of transportation and energy storage.

Avago Agrees to Buy Broadcom for $37 Billion

This article by Dana Mattioli, Dana Cimilluca and Shayndi Raice for the Wall Street Journal. Here is a section:

Neither Avago nor Broadcom has the kind of dominance over individual markets that better-known rivals such as Intel Corp. and Qualcomm Inc. enjoy, and a merger could help address that. In addition to consumer applications, Broadcom supplies the vast majority of chips used in the latest networking switches found in corporate data centers, a fast-growing business that could enhance Avago’s communications-focused revenue stream.

And

Researcher Dealogic estimated before the deal was announced that an acquisition of Broadcom valued at $35 billion would be one of the largest semiconductor takeovers ever, coming amid a burst of deals among such companies. So far this year, there have been more than $26 billion in semiconductor deals announced globally, not including the tie-up between Broadcom and Avago, according to Dealogic. That is more than double the volume in the same period last year and the largest year-to-date total since Dealogic started keeping records in 1995.

With interest rates so low and corporate spreads no longer contracting there has seldom been such an opportune time to borrow money. The flip side is that prices have increased in line with increased activity. Nevertheless demand for chips remains robust as the number of connected devices remains on a secular growth trajectory in line with the Internet of Everything theme.
Broadcom had been confined to an almost 15-year base and it took an acquisition to push it to new recovery highs. This helps to illustrate how focused the bull market has been on a select group of companies. As prices increase it is inevitable investors will look for promising companies that have not yet rallied which may represent catch-up potential.
Avago remains in a reasonably consistent uptrend and while somewhat overextended relative to the 200-day MA at present, a sustained move below $110 would be required to question medium-term scope for additional upside.

The results of this Chart Library Filter of the Nasdaq Composite Index highlight that there are a number of shares with similar long-term base formation completion characteristics.

Email of the day on cryptocurrencies and distributed data

I tuned in to most of your Webinar. Excellent, and as always it gave me much to ruminate on.

Here is something also to ponder; pretty speculative but also with much to think about and references to many initiatives in this space that I had not heard of. Not sure if it should be of interest to the FTM collective.

Thank you for your kind words and I’m delighted you enjoyed the presentation. It has now been uploaded to YouTube.

I agree this article is speculative but it highlights some important points that are worthy of consideration. There is an undeniable trend towards digitisation of just about everything. If information is power, then it has a value and protecting it is more important than ever.

SMA Solar Jumps in Frankfurt as U.S., Japan Sales Narrow Losses

This article by Stefan Nicola for Bloomberg may be of interest to subscribers. Here is a section:

SMA Solar Technology AG, a German solar company that’s cutting a third of its staff to reduce costs, rose to a three-week high in Frankfurt after first-quarter sales jumped and losses narrowed.

SMA climbed as much as 5.9 percent to 14.50 euros, the highest intraday level since April 23, after saying sales grew 28 percent to 226 million euros ($254 million) and a loss on earnings before interest and taxes narrowed to 5.4 million euros. Sales were driven by large-scale solar projects in North America, Japan, the U.K. and Australia, it said.

“With the sales generated and the order backlog at the end of the first quarter, we have already achieved more than 60 percent of our sales target for the year,” Chief Executive Officer Pierre-Pascal Urbon said. “The earnings situation developed better than planned, partly due to the reduction of fixed costs already initiated and to exchange rate effects.”

Solar cells produce direct current but if you want to it to power your home, heat your water or sell electricity back onto the grid it needs to be inverted into alternating current. Therefore everyone who buys solar cells must also buy an inverter. While SMA Solar is a global leader in manufacturing inverters it is not the cheapest.

Elon Musk Challengers Jostle to Solve Riddle of Energy Storage

This article by Will Wade for Bloomberg may be of interest to subscribers. Here is a section:

If the storage breakthrough is coming, it seems obvious it would happen in California, which has long led the U.S. in supporting alternative energy. The state has the most demanding fuel-efficiency standards for cars, as well as incentives that have made it the biggest market for solar power in the U.S.

California “is often a lab” for the rest of the country, said Brian Warshay, an analyst at Bloomberg New Energy Finance. It will “continue to be so on the storage front.”

Older methods of trying to store power have existed for decades, including pumped hydropower facilities in which water is sent to higher elevation reservoirs and released through lower turbines to produce electricity when demand is high.

Here is a link to Tesla’s website where they highlight some of the key features of the Powerwall battery. Perhaps the most important consideration today is that almost no one has a battery in their home and that in a decade it could be commonplace. I reviewed the residential battery sector on April 23rd.
As much as smoothing out supply and demand curves for electricity use in the home are interesting, the industrial and utility sectors are just as exciting.

This Chemistry 3D Printer Can Synthesize Molecules From Scratch

This article from popularmechanics.com may be of interest to subscribers. Here is a section:

Burke's machine simplifies the complex process of synthesizing chemical into a series of generalizable steps. Whether you're trying to form a ring of carbon atoms or strip away hydrogen atoms, each step requires a dose of starting chemicals, which Burke separates into distinct building blocks. Think of them as simple groups of chemical compounds like O2 or CO2 that snap together.

To perform each step, the machine connects a building block and then induces a chemical reaction and washes away the reaction's byproducts—slowly building each molecule from the ground up. The building blocks are snapped together like LEGOs, allowing the chemicals to mix and a reaction to take place.

Using this process, Burke showed that his machine could manufacture thousands of different chemicals in 14 distinct classes of small molecules, including known medicines to several molecules used in LEDs and solar cells. The amount of time each molecule's synthesis requires is a matter of hours, depending on how many steps are involved.

To answer the question of why such a cool Technology is only now becoming available, Burke says the hard part was figuring out the new cleanup method that happens after each chemical reaction. (Some of the information is proprietary, but Burke says he and his colleagues found a universal way to isolate out the molecules they want to keep when washing away the byproducts.)

R&D is expensive which is why corporations are very picky about what they fund and why it is often the division that gets axed first during a rationalisation. Reducing the cost of building compounds can only be good news for the biotech, nanotech and chemical sectors because it will help reduce the time between when an idea germinates and when it can be tested in practice.

Taking this a step further, companies have been busy increasing the speed with which they can sequence genomes and have been reducing the cost. The corollary is that as we learn more about genetics, the ability to build proteins and compounds from scratch means that tailored solutions become much more realisable. 3-D printers are already printing copies of organs such as bladders and even kidneys. Totally customisable solutions appear to be where the medical sector is heading in the coming decades. Nevertheless, a good deal of this good news is already in the price.

The Markets Now

I am pleased to announce that David Pinniger, manager of the Polar Capital BioTechnology Fund, has accepted Iain Little’s invitation to be the new guest speaker for our evening Seminar at London’s East India Club on Monday 20th April.

Email of the day on cyber security and the Internet of Everything

I worked on disc firmware in the early 70s and then continued with computer security consulting to the usual agencies with the usual clearances.

Your correspondent (Ed. on May 4th) seems to have been stimulated to make comment as a result of an FT article. Having been interviewed about security by the FT in the mid-80s, I soon learnt that any statement made to a journalist was likely to be mangled to the point of incoherence.

I wouldn't expect to find insight on finance in a security journal so reacting to a story about security in the finance section of a newspaper without checking the story and the details sets the scene for confusion and misrepresentation.

The "former R&D executive" misses the point of the exploit completely and sets up a strawman about the chain of integrity. The whole point of the attack vector in this case is that no spyware "has to be designed in" .

No-one has made any claim of secret implementations of spyware across "multiple US companies". The "spyware" is not "designed in" as the attack vector uses firmware update capability to introduce the trojan.

This is not new and even in the 70s and 80s we were advising our clients on threats from any updateable firmware whether in drives or in peripherals such as laser printers.

What is new is that someone has published details and it is not surprising that an individual or company needs to be outside the UK and the US to risk publication even of well-understood techniques in this area.

Kaspersky's researchers seem to find aspects of this "sophisticated" but that is probably because their origins are in anti-virus scanning rather than general computer security or high integrity systems.

Even interested hobbyists and hackers have shown how to reverse engineer and modify the firmware of standard off-the-shelf hard drives without any expensive equipment, documentation of the chips or source code of any kind.

Regarding a "very senior executive in the computer security business"; well, I have been one of those and found many others with that description to be completely clueless technically.

As for the advice to use some named anti-virus products, if you check in the deeper parts of the security world, you will find those are referred to as "Silent Partners of the NSA". As a junior engineer who ordered the very first encryption chips to be imported into the UK in the late 70s, I quickly learnt that others had a great interest in my activities and was soon required to inform our friends in Cheltenham of my progress on a regular basis.

I have added two relevant attachments and if you take a few seconds to glance at the sentences that I've highlighted in yellow, you will get some insight beyond the misrepresentations of the FT and Reuters.

There are a few "journalists" who can comment more sensibly in the area and some publish at Technology site Ars Technica.

This is a short overview of how a hobbyist can put a backdoor on a hard drive.

Dan Goodin has a degree in English and a Masters in journalism but covers aspects of security in a readable manner.

Thank you for taking the time to share your experience of what is an important sector. I am constantly impressed by the breadth of knowledge exhibited by our subscribers and your combined generosity in sharing it. This is perhaps the Service’s greatest strength and thank you all for contributing to our Empowerment Through Knowledge theme. Polite informative comments are always welcome.

The original Kaspersky report and the additional annotated report, focusing on how to gain access to a hard drive via a “back door”, are well worth reading as you say. Thanks also for the additional links to the above news items.

The explanation of how Kaspersky was able to develop sink holes for returned information by securing expired web addressed that had been used by the Equation Group is fascinating. While we might conclude this was an error on behalf of the group, another interpretation is that the addresses were simply no longer required and that the group has moved onto something else. When it comes to the defence sector it is reasonable to conclude that whatever is now public is already outdated compared to what is in development or non-public.

Regardless of how one feels about Edward Snowdon’s actions there is no doubt that the information coming from his disclosures is having an effect. It has forced some to work harder to conceal operations and has been a benefit to those wishing to use the existence of well-funded hacking groups to further their own geopolitical aims.

Gemalto Does Not Know What It Does Not Know

This article by Jeremy Scahill for The Intercept may be of interest to subscribers. Here is a section:

The documents published by The Intercept relate to hacks done in 2010 and 2011. The idea that spy agencies are no longer targeting the company — and its competitors — with more sophisticated intrusions, according to Soghoian, is ridiculous. “Gemalto is as much of an interesting target in 2015 as they were in 2010. Gemalto’s security team may want to keep looking, not just for GCHQ and NSA, but also, for the Chinese, Russians and Israelis too,” he said.

Green, the Johns Hopkins cryptographer, says this hack should be “a wake-up call that manufacturers are considered valuable targets by intelligence agencies. There’s a lot of effort in here to minimize and deny the impact of some old attacks, but who cares about old attacks? What I would like to see is some indication that they’re taking this seriously going forward, that they’re hardening their systems and closing any loopholes — because loopholes clearly existed. That would make me enormously more confident than this response.”

Green says that the Gemalto hack evidences a disturbing trend that is on the rise: the targeting of innocent employees of tech firms and the companies themselves. (The same tactic was used by GCHQ in its attack on Belgian telecommunications company Belgacom.)

“Once upon a time we might have believed that corporations like this were not considered valid targets for intelligence agencies, that GCHQ would not go after system administrators and corporations in allied nations. All of those assumptions are out the window, so now we’re in this new environment, where everyone is a valid target,” he says. “In computer security, we talk about ‘threat models,’ which is a way to determine who your adversary is, and what their capabilities are. This news means everyone has to change their threat model.”

This has been a very active few weeks in terms of news flow from the cyber security sector. First we learn from Kaspersky that the firmware of our computers may be infected by an NSA Trojan and there is next to nothing that can be done about it. The story of the Gemalto breach broke last week and opens up the potential that all of our phone calls can be hacked without the least bit of trouble. I’m in awe at the ability of state sponsored operators’ ability to get the information they want but unsettled that we are all so exposed when online. Imagine then how the Chinese feel about these breaches.

Mr Day has been given the task of fulfilling the Taiwanese contract manufacturer’s

dramatic vision of building a 1m-strong robot army to transform the productivity of

its labour-intensive electronics factories, which serve clients including Apple.

He is therefore an important potential customer for robot makers Fanuc and Yaskawa of Japan,

Switzerland’s ABB and Germany’s Kuka, which aim to tap markets beyond the automotive sector – for decades the foundation of the industry.

“Today there are 6m people working in the 3c [computer, communication and consumer electronic]

industry; that’s a market that has a relatively low degree of automation today. We see huge potential, comparable maybe to automotive 40 years ago,” says Till Reuter, chief executive of Kuka.

The four big industrial robots makers are easy to tell apart on the trade show floor: Kuka’s machines are orange, ABB’s graphite white, Fanuc’s yellow and Yaskawa’s are blue and white.

For years these four companies have dominated the market, controlling more than 60 per cent of industrial robot sales. But now their competitive environment is in flux.

New Chinese entrants such as Siasun and Estun are driving down the cost of robots, obliging some incumbents to lower prices too.

Google and Amazon’s recent robot company acquisitions signalled that Silicon Valley is preparing to barge into the market, and newcomers Universal Robots and Rethink Robotics have won plaudits for their lightweight, collaborative robots.

“We see Google, Universal and Rethink as a clear confirmation of the robotic trend, and they will help us open more markets,” Mr Reuter told analysts in March.

Robotics suppliers are now in an era of explosive long-term growth. Inevitably, this will lead to a steady increase in competition but demand, including upgrades, will almost certainly exceed supply for a very long time. Moreover, what can replace increasingly useful robots, other than even smarter robots?

Hacked vs. Hackers: Game On

This article by Nicole Perlroth for the New York Times may be of interest to subscribers. Here is a section:

While much progress is being made, security experts bemoan that there is still little to prevent hackers from breaking in in the first place.

In May, the F.B.I. led a crackdown on digital crime that resulted in 90 arrests, and Robert Anderson, one of the F.B.I.’s top officers on such cases, said the agency planned to take a more aggressive stance. “There is a philosophy change. If you are going to attack Americans, we are going to hold you accountable,” he said at a cybersecurity meeting in Washington.

Still, arrests of hackers are few and far between.

“If you look at an attacker’s expected benefit and expected risk, the equation is pretty good for them,” said Howard Shrobe, a computer scientist at the Massachusetts Institute of Technology. “Nothing is going to change until we can get their expected net gain close to zero or — God willing — in the negative.”

Until last year, Dr. Shrobe was a manager at the Defense Advanced Research Projects Agency, known as Darpa, overseeing the agency’s Clean Slate program, a multiproject “Do Over” for the computer security industry. The program included two separate but related projects. Their premise was to reconsider computing from the ground up and design new computer systems that are much harder to break into and that recover quickly when they have been breached.

“ ‘Patch and pray’ is not a strategic answer,” Dr. Shrobe said. “If that’s all you do, you’re going to drown.”

The first experience many of the world’s emerging consumers will have of banking will be online. Many emerging markets do not have the retail branch network we are accustomed to in the West and the cost of building one versus installing an online system means they may never exist. As banking, retail, wholesale, entertainment, groceries and other parts of our lives move further online and become increasingly mobile, the need to protect our personal data is a growing imperative.

At last week’s talk to potential investors in the FP WM Global Corporate Autonomies Fund, it was a pleasure to meet up again with David Brown. He took me through a brief summary of the presentation he will be giving at the Markets Now event on the 23rd. Quite simply if I were in London on the 23rd I wouldn’t miss this talk. It will offer a unique perspective on the evolution of the Third Industrial Revolution, where we are in the cycle, and what to expect next. Here is a link to his bio.

Top 10 Lots Fetch $177 Million at London Postwar and Contemporary Art Evening Sales

It's easy to get jaded when you follow postwar and contemporary art auctions. ("Disappointing," a dealer muttered last November when a painting sold for $600,000 at Phillips in New York—three times the average annual salary of a U.S. pediatrician.) The top prices at this year's London evening auctions at both Sotheby's and Christie's, however, were enough to jolt even the most complacent art observer. One hundred twenty-two artworks fetched about $366.7 million in sales.

The biggest sale of the week was at Sotheby's, when a painting by Gerhard Richter sold for $46.3 million. At times, bidding for the almost 10-foot-tall Abstraktes Bild felt more like a tennis match than an art auction, as people literally gasped, oohed, and, finally, clapped.

The auctioneer started bidding at 14 million pounds, raising it in 250,000-pound increments, and then clearly one phone bidder got impatient, because the price jumped 2 million pounds. But the other bidder matched it (“oooh”), and the numbers continued to rise in 1 million- and 2 million-pound increments ("ahhh"), until it settled at a hammer price of 27 million pounds (excluding the buyer's premium, which tacked on another 3.3 million pounds or so).

There was concern going into the sales that they were largely two-dimensional, with just a few big names crowding all of the top lots. Saturation was a worry.

In a sense, that's true: Three of the top 10 paintings this week were by Gerhard Richter, two were by Francis Bacon, and two were by Jean-Michel Basquiat, but it turns out there was no need to fret. Intense bidding by a variety of collectors showed there was a real depth to the market, which is a nice way of saying that a lot more people want top lots than there are top lots available. (There were apparently 12 telephone bidders for a red painting by Lucio Fontana that sold for $2.7 million at Christie’s.)

New Rules in China Upset Western Tech Companies

This article by Paul Mozur may be of interest to subscribers. Here is a section:

The groups, which include the U.S. Chamber of Commerce, called for “urgent discussion and dialogue” about what they said was a “growing trend” toward policies that cite cybersecurity in requiring companies to use only Technology products and services that are developed and controlled by Chinese companies.

The letter is the latest salvo in an intensifying tit-for-tat between China and the United States over online security and Technology policy. While the United States has accused Chinese military personnel of hacking and stealing from American companies, China has pointed to recent disclosures of United States snooping in foreign countries as a reason to get rid of American Technology as quickly as possible.

Although it is unclear to what extent the new rules result from security concerns, and to what extent they are cover for building up the Chinese tech industry, the Chinese regulations go far beyond measures taken by most other countries, lending some credibility to industry claims that they are protectionist. Beijing also has long used the Internet to keep tabs on its citizens and ensure the Communist Party’s hold on power.

Chinese companies must also follow the new regulations, though they will find it easier since for most, their core customers are in China.

China has unabashed ambitions of becoming a global economic and military superpower large enough to rival the USA. However if it is to close the technological gap with the USA it will have to invest a great deal of money, time and effort into technological development. Investment in science is already impressive but the commercialisation of ideas takes time.

Like other emerging countries that have come before it, China has copied what it could not develop itself. Insisting companies that wish to do business in China to sign Technology sharing agreements and engaging in corporate espionage are both aimed at achieving the goal of rapidly narrowing technological gaps.

Forcing government agencies and state owned companies to buy from Chinese vendors almost certainly sets the country on course for discourse with the WTO. However by the time a judgement is reached much of the transition will probably have been completed. The majority of China’s leading Technology companies have sought listings in either Hong Kong or the USA which creates a challenge when judging the performance of the sector.

US Equity Strategy The 2015 Playbook

Thanks to a subscriber for this interesting report from Morgan Stanley. Here is a section:

Healthcare and Technology – Contrarian to be market-weight? While we are currently market-weight both, a lot of investors we spoke with recently are overweight at least one (or both of these groups). For healthcare, our assessment is that our call there was probably our best sector-level call in the last four years. We were overweight 2011-through December 1st of 2014, nearly four years, on a thesis that there would be a R&D pipeline re-rating in bioTechnology and pharmaceuticals and that the medical distribution businesses would benefit from volumes and were growth at a reasonable price. Both played out, and our view is reducing the overweight in now prudent. We still hold a 4% position in MCK, and a 2% one in CAH, and select pharma and biotech, and we don’t view healthcare as a short, but valuations are now at ten-year highs on price-to-forward earnings in absolute terms, even if they remain compelling against other defensives like consumer staples.

For Technology, we struggle to implement a discipline where we want to own stocks that are recommended by our fundamental analysts and screen well in our disciplined strategies. Today, there is one Technology stock, HPQ, that screens in the top quintile in both our 24-month model, BEST, and our 3-month alpha model, MOST, that is recommended by a fundamental analyst at Morgan Stanley. Hard to get 20% weight in Technology!

Utilities: While we appreciate that this sector is very idiosyncratic, and we wouldn’t be surprised if the 10-year yield went lower in the next few months (we have not studied this like the US equity market multiple but wouldn’t be at all surprised if this was also un-forecastable in short horizons), we just can’t recommend a sector that is the most expensive vs. its own history it has ever been and trades at a premium to the overall market. Given the S&P500 benchmark weight is only 3%, we don’t think the bet is that significant either way, but midcap value investors have to make up their minds to avoid valuation if they want to own even the benchweight in this group.

All 9 of the major SPDR S&P sector indices can be found in the USA indices section of the Chart Library (at the bottom of the third column). It’s worth clicking through them because what quickly becomes apparent is that while energy and materials have lost consistency the rest are still trending reasonably consistently.

Healthcare, Technology and utilities have been among the best performing stock market sectors over the last 12 months. They share a common characteristic of generally strong balance sheets and improving consumer finances.

KONE wins order for luxury hotel development in Perth, Australia

This press release posted today may be of interest to subscribers. Here is a section:

KONE's people flow solutions will complement the hotel's luxury design and high-quality facilities and ensure smooth and safe traveling for the hotel guests and on-site personnel. The hotel will be equipped with nine KONE MiniSpace(TM) elevators, four KONE TranSys(TM) elevators, two KONE TravelMaster(TM) 110 escalators as well as three service elevators which will be used during the construction phase. In keeping with the hotel's high-end design, the elevator car interiors will be completed with a customized finish.

"Concern for the environment is a growing focus in both construction and tourism industries. I'm pleased that our eco-efficient solutions will be adding a sense of luxury to Crown Towers Perth’s unique look and feel" says KONE's Neeraj Sharma, Executive Vice President, Asia-Pacific and Middle East.

Maintenance contracts for elevators, escalators and moving walkways can be lucrative and can help tide companies over in a period of low demand. However the success of their businesses is tied to new demand. As such the sector represents a tableau of how demand from new building varies considerably around the world.

I created a section in the Eoin’s Favourites section of the Chart Library to examine the sector’s commonality. A great deal of variability is evident with internationally oriented businesses doing best as well as those with an Asian focus.

Email of the day on US listed robotics companies

Any U.S. traded ways to invest in these service robotic application companies? Which industries are the ripest insofar as labor displacement? The national call for a minimum wage seems an added tailwind.

Thank you for these questions which may be of interest to other subscribers. The disruptive power of technological innovation is hard to predict but we can be assured that there will be some major winners and losers.

If you look at the teamsters website, the self-professed strongest union in America, it is not difficult to see how they will oppose any threat to their working conditions and what an incentive this creates for companies to completely displace them. To this end Amazon has already introduced a robotic retrieval system in its warehouses and we can anticipate this will be ubiquitous before long.

Even A Fall In the Oil Price Is Bad News For the Eurozone

Much of the world’s economic history over the past 70 years can be told in relation to movements of the oil price. After 1945, there was a long boom characterised by rapid economic growth, relatively low inflation, stability, exchange rate fixity and full employment. This came to an end in 1974 when the oil price rose from $2.5 per barrel, where it had been pretty much throughout the post-war period, to $15. This brought the world into an altogether new state: inflation rose sharply, exchange rates gyrated, growth faltered and unemployment soared. The era of stagflation was born. Another sharp hike in oil prices in 1979-80 brought another inflation spike and another economic downturn.

Economic recovery in the 1980s owed much to the subsequent sharp fall in oil prices. Since then, they have been up and down, again with significant impacts on the economy. Most importantly, they rose to $143 per barrel just as the world was entering the financial crisis of 2008-9. The reason why the world economy was so weak in the following years is that it had been hit by a double whammy – the worst financial crisis since the 1930s and a huge rise in commodity prices, led by oil. So the news that last week oil prices fell to $78 per barrel, the lowest since 2010, was highly significant. Moreover, there is a good chance that they will fall much further.

Mind you, it is important to recognise that movements in oil prices can be both cause and effect. Other things equal, weaker economic growth reduces the demand for oil and hence tends to lower its price. Lower prices originating in this way aren’t so much good news as a mitigating factor to what would otherwise be bad news.

Yet sometimes oil prices can fall because more oil becomes available, or available more cheaply. This is a supply shock. Both demand and supply elements are at work now but the current low prices seem to be mainly the result of a favourable supply shock, partly associated with the US fracking boom.

There is some important market history in the three paragraphs above, although I believe the headline is misleading.

For decades I have referred to a spike in crude oil prices as an economic ‘game changer’, having a greater impact on GDP growth than almost any other factor. Now, as we approach the mid-point of the current decade, I believe the risk of an upside oil price ‘game changer’ is significantly lower than at any other period for over a century.

Technology Revolution In Nuclear Power Could Slash Costs Below Coal

The Alvin Weinberg Foundation in London is tracking seven proposals across the world for molten salt reactors (MSRs) rather than relying on solid uranium fuel. Unlike conventional reactors, these operate at atmospheric pressure. They do not need vast reinforced domes. There is no risk of blowing off the top.

The reactors are more efficient. They burn up 30 times as much of the nuclear fuel and can run off spent fuel. The molten salt is inert so that even if there is a leak, it cools and solidifies. The fission process stops automatically in an accident. There can be no chain-reaction, and therefore no possible disaster along the lines of Chernobyl or Fukushima. That at least is the claim.

The most revolutionary design is by British scientists at Moltex. "I started this three years ago because I was so shocked that EDF was being paid 9.25p per kWh for electricity," said Ian Scott, the chief inventor. "We believe we can achieve parity with gas (in the UK) at 5.5p, and our real goal is to reach 3.5p and drive coal of out of business," he said.

The Moltex project can feed off low-grade spent uranium, cleaning up toxic waste in the process. "There are 120 tonnes of purified plutonium from nuclear weapons in Britain. We could burn that up in 10 to 15 years," he said. What remained would be greatly purified, with a shorter half-life, and could be left safely in salt mines. It does not have to be buried in steel tanks deep underground for 240,000 years. Thereafter the plant could be redesigned to use thorium, a cleaner fuel.

The reactor can be built in factories at low cost. It uses tubes that rest in molten salt, working through a convection process rather than by pumping the material around the reactor. This cuts corrosion. There is minimal risk of leaking deadly cesium or iodine for hundreds of miles around.

Transatomic Power, in Boston, says it can build a "waste-burning reactor" using molten salts in three years, after regulatory approval. The design is based on models built by US physicist Alvin Weinberg at Oak Ridge National Laboratory in the 1960s, but never pursued - some say because the Pentagon wanted the plutonium residue for nuclear warheads.

It would cost $2bn (overnight cost) for a 550-megawatt plant, less than half the Hinkley Point project on a pro-rata basis. Transatomic says it can generate 75 times as much electricity per tonne of uranium as a conventional light-water reactor. The waste would be cut by 95pc, and the worst would be eliminated. It operates in a sub-critical state. If the system overheats, a plug melts at the bottom and salts drain into a cooling basin. Again, these are the claims.

The most advanced project is another Oak Ridge variant designed by Terrestrial's David LeBlanc, who worked on the original models with Weinberg. It aims to produce power by the early 2020s from small molten salt reactors of up to 300MW, for remote regions and industrial plants. "We think we can take on fossil fuel power on a pure commercial basis. This is a revolution for global energy," said Simon Irish, the company's chief executive.

Here is a PDF version if you had any difficulty in opening the article above.

Molten salt reactors that provide cheap energy, consume most of our nuclear waste, are vastly safer than nuclear plants in use today, and much cheaper to build, sounds too good to be true. That is the reality today, but theoretically, the potential of future technologies is virtually unlimited.

The prospect of commercially competitive molten salt reactors is presumably at least a decade away, assuming this fledgling industry receives the development capital required. That will prove to be more of a political than economic challenge, I fear. Backers of today’s various energy sources will be opposed, as will most militant greens, and governments are too often looking for short-term solutions.

Nevertheless, there is a clear ‘needs must’ incentive for reliable, economic, 24-hour a day energy at a consistent rate, which does not pollute the atmosphere. Molten salt reactor projects are certainly worth developing.

Looking ahead, I would welcome any informative articles and reports on this subject that readers are able to share with our Collective of Subscribers.

Robust demand and disciplined supply for metal casings

Thanks to a subscriber for this report from Deutsche Bank focusing on the metal casings sector for hand held devices. Here is a section:

We hold an optimistic view on the metal casings industry. On the demand side, we are confident about its robust shipment momentum within the next three years due to (a) the design trend toward ultra-slim and lighter form-factor, and larger panel-screens on mobile devices (NBs, smartphones and tablets), (b) Apple’s preference for using metal casings (its adoption rate at 86%, Figure 19) for iPhone, iPad and Macbook products, and (c) the increasing adoption rate from other smartphone and tablet brand vendors. On the supply side, the disciplined procurement of CNC (Computer Numerical Control) machines by major casing suppliers in Asia (hence controlled supply increase) and the higher entry barriers in metal casings manufacturing and surface treatment solution can help ease the Street’s concerns about the industry’s oversupply risks.

It is easy to become desensitised to photos of long lines of people sleeping outside Apple stores in order to be among the first to own the next new product. However these people represent the loyal customer base that is the envy of every other consumer electronics company. News last week that privately held, discount smart phone manufacturer Xiaomi would be moving to metal cases exemplifies the trend of Apple imitators, not least in the build quality end users have come to expect.

EU Aims at Russian Banks, Technology in Widest Sanctions

The European Union curbed Russia’s access to bank financing and advanced Technology in its widest-ranging sanctions yet over President Vladimir Putin’s backing of the rebellion in eastern Ukraine.

EU governments agreed today in Brussels to bar state-owned banks from selling shares or bonds in Europe and restricted the export of equipment to modernize the oil industry, a key prop for Russia’s economy, two EU officials told reporters. New contracts to sell arms to Russia and the export of machinery, electronics and other civilian products with military uses will also be banned.

“The political implications of the escalation in tensions are likely to cast a further chill over relations between Russia and the West,” Citigroup Inc. analysts includingEric Lee and Tina Fordham said in a note to clients before the EU decision. “Economic costs are starting to bite, but it could be a while before the economic consequences bear domestic political costs for Russia.”

The U.S. is also preparing to announce tougher sanctions on Russia after months of separatist unrest in Ukraine’s easternmost Donetsk and Luhansk regions and the disaster involving a Malaysian Air jet¸ which U.S. officials have said was probably downed by a missile fired by the pro-Russian rebels. At least 10 soldiers and 28 civilians died in violence over the past 24 hours.

The new package of EU sanctions will “track pretty closely” with those already imposed by the U.S. and the Obama administration plans to unveil additional penalties as soon as today, PresidentBarack Obama’s spokesman said.

And:

For the first time, the EU sought to hobble broad swathes of Russian industry, with the goal of accelerating the flight of capital from the country. Russian economic growth will slow to 0.2 percent in 2014 from 1.3 percent last year, the International Monetary Fund said last week.

“Russia needs the opposite, Russia needs internationalization, globalization to make Russia a better place to do business,” Tim Ash, an emerging-market economist at Standard Bank Plc in London, told Bloomberg Television earlier today. “In the short term, the impact of sanctions could be to push Russia into recession.”

Taking aim at the Russian financial system, the EU prohibited state-owned banks from selling securities with more than 90 days maturity to European investors. The result will be “sharply increased costs of issuance,” the European Commission predicted in a background paper last week.

My impression is that these European Union sanctions are tougher than what would have been remotely possible before the MH17 massacre, or perhaps even last week. Moreover, they will last for 12 months, albeit first reviewed at the end of October, but requiring unanimity from all 28 members to drop the sanctions prematurely. That would appear unlikely. The US has also responded in kind by increasing its sanctions to cover Russian banks.

The interesting question is how will Putin react to these new sanctions?

This item continues in the Subscriber’s Area and includes links to three additional articles.

US Dividend Contenders

Following on from yesterday’s addition of a section for the US Dividend Champions to the Chart Library, I created a section for the US Dividend Contenders today. Unlike the Dividend Aristocrats which demand 25 years of consecutive increases as well as a market cap and liquidity provision, the Champions and Contenders only look at records of increasing dividends. In the case of the Champions this is at least 25 consecutive years and between 7 and 24 years for the Contenders.

The US Dividend Contenders represent an interesting universe of companies where banks, utilities, insurance, MLPs and REITS dominate. This list also highlights the increasingly large number of Technology companies that have maintained solid records of dividend increases over the last decade.

S&P/TSX Dividend Aristocrats Review

A company needs to increase dividends for at least 5 years in order to gain access to the Canadian Dividend Aristocrats. For a country with such a wide array of income bearing securities, the time hurdle for entry is lower than other jurisdictions and highlights the fact that while income trust structures pay out high percentages of their profits, those dividends can be highly variable.

The Canadian list is the only one of the Dividend Aristocrat groups that has a substantial weighting of banks and mining companies. This is a testament both to the country’s sound financial system and the size and maturity of its resources sector. The Total Return Index’s uptrend has picked up pace since October and while it is becoming increasingly overextended relative to the 200-day MA, a break in the progression of higher reaction lows would be required to signal mean reversion is underway.

Pan Asia Dividend Aristocrats Review

In order to gain access to the S&P Pan Asia Dividend Aristocrats a company must increase its dividend for at least 7 consecutive years. S&P made constituents of the Index freely available until 2011 but then decided to make them proprietary. As a result in reviews of the sector over the last few years I have been limited to using out of date information. Happily, S&P have changed their policy and the constituent data is available once more.

The Index still has 57 members but there have been 31 changes. The number of Australian and Indian companies has decreased while the Japanese and Chinese weightings have increased. The Philippines and Indonesia are no longer represented while South Korea only has only one member.

The performance of the Index is quite different from either the US or European equivalents; highlighting the more difficult trading environment evident in Asia over much of the last 18 months; with the exception of Japan last year.

Email of the day 1

On Reef Boring Technology:

“I was very interested in reading about Reef Boring Technology mentioned in your comment of the day on March 5th. It reminded me of how early you were commenting about shale gas. How important do you see this development. Can it have similar effects on Gold as fracking did on gas? I would be grateful for your or the collectives’ views on this. Thanks very much in advance.”

The short answer is our maxim: Technology Is Everything! It will not have quite the same impact as fracking for gas in shale deposits, because that resource could not previously be released by conventional drilling.

Tim Price: Power failure

My thanks to the author for his ever-interesting letter, published by PFP Wealth Management. Here is a brief sample:

Make time, if you can, to watch this 2013 investment review from Century Management. For all the problems and financial distortions caused by overconfident central bankers and hopelessly indebted governments, Arnold Van Den Berg manages to convey a wonderfully balanced and even optimistic assessment for the US economy (and by extension for much of the world). A hat-tip to Jonathan Escott for bringing it to our attention. Van Den Berg highlights, for example, the impact of fracking on the domestic energy market; an Egyptian fertilizer company recently established a plant in the US where natural gas prices are now cheaper than in the Middle East. He also alludes to the advances in 3D printing, nanoTechnology, artificial intelligence and robotics. As an example of the latter two trends, he points out that in July last year, the US Navy landed an unmanned fighter jet on the aircraft carrier USS George H W Bush:

“When you consider that the computer had to factor in airspeed, altitude, the angle-of-attack, pitching, a rolling flight deck, not to mention the changing winds and seas, this was a historic landing for the Navy and maybe equally so for robots and artificial intelligence.”

Many thanks for your good wishes and a splendid article on a subject of incalculable importance which I find endlessly fascinating… and I am not just talking about the cricket which I am sure all my Australian friends are savouring.

This item continues in the Subscriber’s Area, where the article is also attached.

Fracking Boom Pushes U.S. Oil Output to 25-Year High

U.S. crude production rose to the highest level in a quarter-century as a shale drilling boom in states such as Texas and North Dakota cut the need for foreign oil and pushed the country closer to energy independence.

The U.S. pumped 8.075 million barrels a day in the week ended Dec. 6, a gain of 0.8 percent, or 64,000 barrels a day, the Energy Information Administration said today. It’s the most since October 1988.

“You can’t swing a cat without hitting a barrel of oil in North America,” saidStephen Schork, president of the Schork Group Inc., an energy consulting firm in Villanova, Pennsylvania. “It’s amazing how quickly things can change.”

U.S. oil output grew 18 percent in the past 12 months, the fastest pace on record, boosting fuel exports and reducing reliance on imports, according to the EIA. The boom will make the country the world’s largest producer by 2015, five years sooner than last year’s forecast, the International Energy Agency in Paris said last month.

Remember growing up with all those stories about how we were going to run out of oil, to the point of being impoverished and sitting in the dark? They persisted right into the 21st Century. People are still inventing reasons to avoid tapping their natural resources, and paying much higher prices for their energy. Who benefits from that?

Technology is everything. It improves our livelihoods, as most of us know. We have only begun to see how it can reduce pollution, because that challenge was not sufficiently prioritised previously.

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